Section 54
AUTHENTICATION
OF DOCUMENTS
[1931] 1 COMP CAS 58 (BOM.)
HIGH COURT OF
Calico Printers’
Association Ltd.
v.
BEAUMONT, C.J.
AND BAKER, J.
AUGUST 5, 1930.
Bahadurji, for the
Appellants.
Coltman (with him Sir famshedji Kanga, Advocate-General),
for the Respondents.
Beaumont, C.J.—This is
an appeal from an order, made by Mr. Justice Black well, in Chambers, in which
he directed the plaintiffs' plaint to be taken off the file. The point raises a
rather troublesome question of practice on which Mr. Justice K. Kemp in
Chambers came to a conclusion different from that at which Mr. Justice Blackwell
arrived in the present case and although Mr. Justice Blackwell in a latter case
followed the decision of Mr. Justice K. Kemp, he still thought his original
point of view was right.
Now, the point is this. The plaintiffs are a company
registered in England and also registered under s. 277 of the Indian Companies
Act, and they commenced this action to obtain an injunction to restrain the
defendants from importing and/or selling certain article under a trade-mark
similar to that of the plaintiffs, and the plaint was signed by Mr. C.M.
Eastley, described as a partner in the firm of Messrs. Little & Co.,
attorneys for and duly constituted attorneys of the plaintiffs. There is a
power-of-attorney, which is on the record, given by the plaintiffs to Mr. Eastley
under which he was empowered to commence an action in the Bombay Presidency
concerning the infringement of any designs registered in India and to sign
pleadings and to execute and do all such other deeds, instruments, acts and
things whatsoever which might be necessary or proper in relation to the matters
aforesaid. The power, although by no means a general power, is a power
authorising him expressly to sign the plaint in an action such as this.
Now, the question is whether that plaint was well signed or
not, and I think that question turns on the meaning to be attributed to O.
XXIX, r. 1, and O. VI, r. 14. Order XXIX, r. 1, provides :
"In suits by or against a corporation any pleading may be signed and verified on behalf of the corporation by the secretary or by any director or other principal officer of the corporation who is able to depose to the facts of the case.
Now, in terms, that is a permissive order and directs that
suits by or against a corporation may be signed and verified on behalf of the corporation
by the person therein mentioned, i.e., secretary, director or other principal
officer."
Well, then you get O. VI, r. 14, which provides :
"Every pleading shall be signed by the party and his
pleader (if any) : Provided that where a party pleading is, by reason of
absence or for other good cause, unable to sign the pleading, it may be signed
by any person duly authorized by him to sign the same or to sue or defend on
his behalf."
It has been argued in the first place that O. VI, r. 14
does not apply to a company and a decision of the Privy Council in
"Their Lordships are of opinion that s. 51 of the
Code, [to which r. 14, of O. VI, now corresponds] which regulates proceedings
taken by or on behalf of ordinary plaintiffs, does not apply to such a case as
the present, but that this case must be decided with reference only to s. 435,
which expressly applies to corporations……….."
Section 435 is now replaced by O. XXIX, r. 1. I think that,
when the facts in that case are looked at, the Privy Council did not mean to
say that s. 51 of the Code,—now O. VI, r. 14—does not apply to companies. They
only held that it did not apply in that particular case, because the power of
attorney relied on in that case to bring the case within s. 51 did not contain
any power to bring the action in question.
It seems to me that the plain terms of r. 14 of O. VI, do
apply to a company which is a party to an action. The rule provides that every
pleading shall be signed by the party and his pleader. Mr. Coltman suggests
that inasmuch as the company cannot, of course, sign a document by itself, we
must read into O. VI, r. 14, the effect of O. XXIX, r. 1, and say that the
pleading shall be signed by the party or in the case of a company by one of the
persons mentioned in 0. XXIX, r. 1, and then the proviso which follows to the
effect that where a party pleading is, by reason of absence or for other good
cause, unable to sign the pleading, means, in the case of a company, where a
person, authorised under O. XXIX, r. 1, to sign is by reason of absence or for other
good cause unable to sign. I think that construction would create too many
difficulties, and it seems to me that the proper construction to put upon the
rules taken together is this that under O. VI, r. 14, the pleading must be
signed by the party, but where the party is a company and, there fore, unable
to sign, it necessarily follows having regard to the words "or for other
good cause," that the last part of the section always applies in the case
of a company, and that the company, therefore, can always authorise some person
to sign on behalf of the company. If the company does not choose to do that, it
can act under O. XXIX, r. 1, i, e., it can rely on that Order as in fact
constituting an agent to sign without the necessity of giving any express authority.
In that way O. XXIX, is read as merely permissive and not mandatory. In point of form it is
clearly permissive and not mandatory.
I think, therefore, that the
order of Mr. Justice Blackwell was wrong technically and the plaint was
correct. But as this point does not seem to have been taken in the Court below,
I think the appeal should be allowed without costs either here or in the Court
below.
Baker, J.—I agree and have
nothing to add.
Section 58A
Public deposits not to be
invited without an advertisement
[1989] 65 COMP. CAS. 553 (BOM.)
v.
Registrar of Companies
G.H. GUTTAL J.
Company Petitions Nos. 502, 506,
526, 527, 528, 529
and 530 of 1984. (Company
Applications Nos.
322, 323, 331, 332, 333, 334 and 335
of 1984)
JULY 28, 1988
P.L. Nain and Virag V. Tulzapurkar for the petitioners.
B.J. Rele and Neeta V.
Masurkar for the Registrar of Companies.
G.H. Guttal J.—The directors of Amar Dye-Chem. Ltd. (in liquidation) have
filed these petitions for an order that they be relieved from any criminal
proceedings that might be brought against them for default, negligence,
misfeasance, etc., in compliance with the provisons of section 58A of the
Companies Act and the Companies (Acceptance of Deposits) Rules, 1975. The
applications are made under section 633 of the Companies Act. The Companies
Act, 1956, and the Companies (Acceptance of Deposits) Rules, 1975, are
hereinafter referred to as "the Act" and "the Rules",
respectively.
J.H. Doshi and H.J. Doshi,
who are, respectively, the petitioners in Company Petitions Nos. 502 of 1984
and 506 of 1984 were, at the relevant time, full time directors of the company.
The former was the chairman of the company. The petitioners in Company Petitions
Nos. 528 of 1984, 529 of 1984 and 530 of 1984, were appointed as directors of
the company on January 11, 1984. They were not directors of the company on the
date on which the winding-up order was made. The petitioners in Company
Petitions Nos. 526 of 1984 and 527 of 1984 were directors in their capacity as
professional men and were not full-time directors of the company. Company
Applications Nos. 322 of 1984 (in Company Petition No. 502 of 1984), 323 of
1984 (in Company Petition No. 506 of 1984), Company Application No. 33 of 1984
(in Company Petition No. 528 of 1984), Company Application No. 334 of 1984 (in
Company Petition No. 529 of 1984), Company Application No. 335 of 1984 (in
Company Petition No. 530 of 1984), Company Application No. 332 of 1984 (in
Company Petition No. 527 of 1984), and Company Application No. 331 of 1984 (in
Company Petition No. 526 of 1984), are for interim orders to the effect that
the applicants be relieved from any criminal proceedings arising out of their
default in compliance with section 58A of the Act and the Rules of 1975.
The admitted facts are as
under:
(i) The company is engaged in the manufacture and
distribution of dyes, intermediates and chemicals. The company supplies the
products mainly to the textile industry.
(ii) The total of the acceptances of new deposits during July
1983, and October, 1983, was for Rs. 2,94,000 in excess of the permissible
limit. The total of renewals of old deposits between July 1983, and June, 1984,
was for Rs. 46,72,500 in excess of the legal limit.
(iii) In respect of the acceptance of fresh
deposits of Rs. 2,94,000 and renewals of old deposits of Rs. 46,72,500 between
July, 1983, and October, 1983, the company has contravened section 58A of the
Companies Act.
(iv) The
aggregate amount of deposits which was not repaid as on June 30, 1984, was Rs.
45,68,000.
(v) In their return of deposits as on March 31, 1984, filed
with the Registrar of Companies, the company has admitted that a total of Rs.
21,74,664 excess deposits remained unpaid to the depositors.
(vi) In the return of deposits as on March 31, 1984, the
company has stated that the deposits of Rs. 10,72,000 claimed by the depositors
had been deferred with the consent of the shareholders.
(vii) The amount of deposits accepted or renewed
under rule 3(2)(ii) during the year ending March 31, 1985, was Rs. 78,16,000.
During April, May, June, 1984, the company accepted or renewed deposits of the
value of Rs. 15,75,000 from the public and accepted Rs. 3,28,000 from
shareholders.
(viii) No
deposits were repaid after September 30, 1983.
Thus, there is an admitted
default in acceptance of deposits.
The arguments advanced by
counsel for the petitioners may be summarised as under:
(1) The directors who are petitioners in Company Petitions Nos.
528 of 1984, 529 of 1984 and 530 of 1984, were appointed on January 11, 1984.
They were not directors on the date on which the winding-up order was made.
Therefore, they should be relieved from liability for the acts of the company.
(2) The petitioners in Company Petitions Nos. 526 of 1984 and
527 of 1984, and those referred to at (1) above were appointed as directors in
their professional capacity and were not full-time directors. Since they were
not concerned with the day to day management of the affairs of the company,
they cannot be held responsible for any act leading to criminal proceedings.
(3) There were special circumstances beyond the control of
the company which caused loss of production and strained the economy of the
company. There was a strike and "go slow" by the workers between 1981
and December 27, 1982, when the company commenced production. However, the
period during which the textile workers' strike affected the sales has not been
stated. These factors caused losses and drove the company to invite deposits.
(4) For the reasons stated in (3) above, the petitioners
should be held to have acted honestly and reasonably within the meaning of
section 633 of the Act.
Mr. Rele, appearing for the
Regional Director of the Company Law Board, drew my attention to the provisions
of the Act and the Rules, and urged that in law there is no distinction between
the liability of full-time directors and directors appointed by virtue of their
professional skill. Having regard to the facts of the case, the directors
cannot be said to have acted honestly and reasonably.
In view of the admitted
violation of section 58A of the Act and Rule 3 of the Rules, it is not
necessary to deal with the facts any further. I will immediately proceed to
consider whether the elements of section 633(1) have been fulfilled.
In order to understand the
nature of the liability of the members of the board of directors, certain
provisions of the Companies Act which highlight the responsibility of directors
need to be borne in mind. Section 58A enacts very stringent provisions in
regard to acceptance of deposits. For example,
advertisements inviting deposits, disclosure of the financial position of the
company, application of the Rules even to renewal of deposits highlight the
intention to protect the interests of the investing public. It follows,
therefore, that the officers of the company are enjoined to follow the
provisions strictly.
Similarly, rule 3 employs
language which is prohibitory in its tenor and, therefore, demands strict
compliance.
Does the law make any distinction
between full-time directors and directors who lend their special skills by
accepting membership of the board of directors? The answer is provided by
certain provisions of the Act. Let me consider them.
"Officer", the
word used in section 633, includes "any director, managing agent,
secretaries and treasurers, manager or secretary, or any person in accordance
with whose directions or instructions the board of directors or any one or more
of the directors is or are accustomed to act ......". Thus,
"any director" is an officer of the company. The Legislature which
defined the word "Officer" has made no distinction based on full-time
and part-time performance of duty.
The powers of the company
are exercised by the board of directors.' It shall not exercise any power or do
any act which is required to be exercised of done by the company in general
meetings.
Here again no distinction founded on part-time participation as member of the
board is discernible. A meeting of the board of directors shall be held at
least once in three months. In such meeting,
every member participates in voting and takes decisions without distinction as
to whether he is a part-time or full-time director.
At every annual general
meeting of the company held in pursuance of section 166, the board of directors
is enjoined to lay before the company a balance-sheet. Every balance-sheet and
every profit and loss account of a company shall be signed on behalf of the
board of directors by not less than two directors of the company one of whom
shall be the managing director where there is one. The
balance-sheet and profit and loss account are required to be signed by not less
than two directors. One of them may be a part-time director.
"Director" has been denned to include "any person occupying the
position of director by whatever name called".
The enactment, viz.,
section 58A, which demands strict compliance, the definition of
"Officer" which makes no distinction based on part-time performance
of duties, the equality of the responsibilities of the members of the board of
directors and the definition of "director" which admits of no
differentiation between part-time and full-time directors, has to be construed
according to its plain meaning. For this purpose, one must ask the question :
Does any interpretative criterion point away from what these sections mean? The
words mean what they say. If there is nothing to modify, nothing to alter, nothing
to qualify the language which a statute contains, the words and sentences must
be construed in their ordinary and natural meaning. The words
should be given the meaning which a normal speaker of the English language
would understand them to bear in their context.
The plain meaning of
director is the person occupying the position of director—call him a part-time
director or a full time director. The rules of construction do not call for any
modification or qualification of this meaning. Therefore, every petitioner
herein is a director of the company. Any distinction based on part-time
performance of duties is unrealistic, opposed to the usage of English prose and
would lead to absurd results.
Mr. Nain sought support to
his argument from Trisure India Ltd., In re [1983] 54 Comp Cas 197 (Bom). The
directors were accused of a conspiracy to manipulate the accounts and
intentional misstatements in the prospectus. It was found subsequently that the
books of the company were fabricated and falsified to show a false picture. The
figures of profits and sales shown in the prospectus were based on the
fabricated records. The decision of the trial court not to relieve the
directors from the liability to prosecution was based on events discovered
subsequently. This was the main reason why the Division Bench decided to
relieve the directors from liability for criminal action. The conclusions of
the Division Bench on the facts may be summarised as under:
(a) The directors who were in
(b) The petitioning directors did not take immediate drastic
action as, in theiropinion, the irregularities were not serious.
(c) The directors were not required to go through the account
books, nor were they under any obligation to examine the sale statistics.
(d) The failure to send returns of production to the
directors in
(e) The frauds were not known to the directors at the time
when the prospectus was signed by them. The subsequent discovery did not make
them responsible.
It is against the
background of these facts that the judgment has to be understood. All the facts
in that case pointed at Hegde—the managing director. The directors who were in
This is not to suggest that
none of the petitioners herein should be relieved from criminal proceedings.
The point is whether, as a matter of law, the part-time directors carry no
responsibilities which may lead to criminal proceedings. If they are liable,
the question of relief from criminal action becomes part of the court's
discretion. In the matter of proceedings for negligence, default, breach of
duty, misfeance and breach of trust, the Act and the rules admit of no
distinction between members of the board of directors based on their part-time
or full-time performance of duties. Their liability for any proceedings for
such acts is equal.
The next question is
whether, in accepting the deposits in breach of the Act and the Rules, the
petitioners acted honestly and reasonably.
Even if the production
suffered due to go-slow tactics of the workers and the strike, this situation
ended on December 27, 8982, or early in 1983. There is no explanation as to why
new deposits to the tune of Rs. 2,94,000 were accepted after July, 1983. It is
not the case of the petitioners that in July, 1983, also, this situation
continued. Even if it is assumed that the company was in need of money and,
therefore, new deposits were accepted, there is no explanation as to why the
sanction of the company in general meeting was not taken. Then, between July,
1983, and October, 1983, the deposits of Rs. 46,72,500 were renewed. If the
company was unable to repay the old deposits, it is not reasonable to borrow
money and that too, without the sanction of the company. The return of deposits
dated March 31, 1984, shows that a total of Rs. 21,74,664 is the amount of
excess deposits which remained unpaid. Again, in April, May, and June, 198 4,
the company accepted or renewed deposits of the value of Rs. 15,75,000 from the
public and Rs. 3,28,000 from shareholders. All this has been done
notwithstanding the financial position of the company which showed that the
company was not in a position to repay the deposits and that it was not
entitled to borrow money in excess of the limit permitted by law. The meetings
of the board of directors were held every year and the picture was clear to the
directors as to whether they were full-time directors or part time directors.
It is not the case of the part-time directors that they were unable to know the
financial picture in respect of the deposits without scrutiny of the account
books. The statements of profit and loss and the balance-sheet must have shown
that there were deposits in excess of the limit. Yet the board of directors
proceeded to sanction the acceptance of new deposits and renewal of the old
ones. No circumstances which suggest that this was reasonable conduct are
discernible from the petition.
It was urged that the sum
of Rs. 46,72,500 represents renewal of deposits. According to Mr. Nain, the
renewals made between July, 1983, and June, 1984, do not constitute
"acceptance" of deposits. This submission is untenable. When a
company is unable to repay the deposits and, therefore, renews them, what it
does is to accept the old deposits for a longer period. The word
"renew" means "to acquire again". Hence, renewal of fixed
deposits amounts to receiving fresh deposits within the meaning of section 58A
of the Act.
Having regard to the
provisions of the law, I do not find any distinction, in principle, between the
case of a full-time director and the case of a part-time director of a company.
Cases like Trisure India Ltd. [1983] 54 Comp Cas 197 (Bom), are in a different
category. The distinction made in that case was based on the fact that the
petitioning-directors were sought to be held liable because of events
discovered subsequently, and the court, found that, on the date on which the
prospectus was signed, there was nothing which could attribute, to the
directors, knowledge of the fraud. So far as the petitioners in Company
Petitions Nos. 502 of 1984 and 506 of 1984 are concerned, they were associated
personally with the management of the company and were, therefore, not only
cognizant of, but are liable for, the acceptance of the deposits contrary to
the provisions of law.
Notwithstanding the pressure on the company's finances, they cannot be
permitted to shut their eyes to what was obvious to everyone who examines the
affairs of the company even superficially.
Even if all the directors
are, in law, liable for their acts, the question of relieving them is still one
of discretion. Now, the question is whether, in exercise of my discretion, I
should relieve the officers of the company from liability for legal
proceedings. The petitioners, except the petitioners in Company Petition No.
502 of 1984 and Company Petition No. 506 of 1984, were part time directors.
This fact is the basis of Mr. Nain's argument. The petitioners in Company
Petition No. 502 of 1984 and Company Petition No. 506 of 1984 were directly
concerned with the day to day affairs of the company. The petitioners in
Company Petitions Nos. 526 of 1984, 527 of 1984, 528 of 1984, 529 of 1984 and
530 of 1984 were not expected to look after the day to day affairs of the
company. If the responsibility of all the directors, whether they perform part
time duties or full time duties is equal, should any of the directors be
relieved from the liability in respect of negligence, breach of trust,
misfeasance, etc.? This is always a question of judicial discretion. What are
the cases in which part-time directors should be relieved? The answer would
depend upon the circumstances of each case and no rigid formula can be laid
down. In this case, the directors who perform part time functions may be
relieved from liability because no evidence of the fact that they had exercised
any control in the matter has been brough forth. But, in a given case, evidence
about their knowledge of the facts which constitute negligence, breach of
trust, misfeasance, etc., may be brought forth. In such cases, they should not
be relieved from liability for acts of negligence, misfeasance, etc. I should
not be understood to have held that part time directors, by reason of their
part time status, should invariably be relieved from the liability for
negligence, breach of duty, misfeasance, breach of trust, etc.
In my opinion, it will be
unreasonable to fasten these directors with the liability for their defaults,
negligence, misfeasance or breach of trust which might have been caused because
of the conduct of the petitioners in Company Petitions Nos. 502 of 1984 and 506 of 1984, who
were admittedly in charge of the day-to-day affairs of the company.
The
petitioners in Company Petitions Nos. 528 of 1984, 529 of 1984 and 530 of 1984
were not directors of the company on January 11, 1984, on which date the
winding-up order was made. These petitioners also cannot be held liable for the
acts of the company. They, too, will have to be relieved.
For
all these reasons, I make the following order:
(i) Company Petitions Nos. 502 of 1984
and 506 of 1984 are dismissed. Similarly, Company Application No., 322 of 1984
(in Company Petition No. 502 of 1984) and Company Application No. 323 of 1984
(in Company Petition No. 506 of 1984) are dismissed.
The petitioners shall
pay costs of each of these petitions and applications to the Official
Liquidator and the Regional Director of the Company Law Board, quantified at
Rs. 300 each.
(ii) Company Petition No. 526 of 1984,
No. 527 of 1984, No. 528 of 1984, No. 529 of 1984 and No. 530 of 1984 are made
absolute in terms of prayer (a).
(iii) There shall be no order on Company
Application No. 331 of 1984 (in Company Petition No. 526 of 1984), Company
Application No. 332 of 1984 (in Company Petition No. 527 of 1984), Company
Application No. 333 of 1984 (in Company Petition No. 528 of 1984), Company
Application No. 334 of 1984 (in Company Petition No. 529 of 1984) and Company
Application No. 335 of 1984 (in Company Petition No. 530 of 1984).
(iv)
This order shall not come into operation for three weeks.
[1980] 50 COMP. CAS. 276 (MAD.)
HIGH COURT OF
v.
SURYAMURTHY, J.
OCTOBER 31, 1979
Navaneethakrishnan and T.R.
Rajagopal for the Petitioners.
U.N.R.
Rao for the Respondent.
Suryamurthy
J.—This is a petition
to quash the proceedings in C.C. No. 294 of 1978 on the file of the court of
the Judicial First Class Magistrate,
The learned counsel for the
petitioner, Mr. Navaneethakrishnan, says that he has nothing to say by way of
arguments in support of this petition, and, therefore, I have not had the
benefit of listening to his erudite arguments in this case. Obviously, this
petition has been filed frivolously and vexatiously with a view to protract the
proceedings and gain breathing time for the attempt the petitioners are said to
be making to get an exemption from the operation of s. 58A(4) and 58A(5) of the
Companies Act (which shall hereafter be referred to as "the Act"),
under which this complaint has been filed. The learned counsel for the
petitioners, who kept us waiting for about nearly 40 minutes before making his
appearance, wants this petition to be posted to another date for the purpose of
consulting his clients and withdrawing the petition. However, having regard to
the importance of the question raised in this petition and the possibility of
similar petitions being filed merely for the purpose of protracting the
proceedings in the trial courts, it is necessary to decide the question on
merits.
The criminal complaint has
been filed against the petitioners herein by the Assistant Registrar of
Companies,
The
total amount of deposits repayable during the year was Rs. 90,000. Thus, the
deposits covered under r. 3(2)(ii) are in excess of 25% of the aggregate of the
paid-up capital and free reserves less accumulated losses. The company renewed
deposits to the tune of Rs. 9,11,550 during the period from April 1, 1975, to
March 31, 1976, despite the fact that the existing deposits amounting to Rs.
10,07,500 were already in excess of the limits laid down under r. 3(2)(ii) of
the Rules.
The
contention of the complainant was that as the company had renewed deposits in
contravention of s. 58A of the Act and the relevant rules made under s. 58A(1) of
the Act, the company ought to have repaid the deposits within 30 days from the
date of acceptance of such deposits as required under s. 58A(4) of the Act. The
company has failed or omitted to make repayments of all the excess deposits
received by it in contravention of s. 58A(4) of the Act within 30 days from the
date of acceptance of such deposits. Therefore, the complaint was filed
alleging that the company has committed an offence under s. 58A of the Act,
punishable under s. 58A(5)(a) of the Act. A-2 is the managing director of the
A-1 company and A-3 to A-6 are the directors who in terms of s. 2(30) of the
Act are officers of the company. It is the responsibility of A-2 to A-6 to
ensure that the company does not accept any deposit in excess of the limit
prescribed under the Companies (Acceptance of Deposits) Rules, 1975, and where
any deposit is accepted by the company in contravention of the aforesaid Rules,
it is the responsibility of the office bearers to repay such deposit within 30
days from the date of acceptance of such deposit. As A-2 to A-6 have failed to
make repayment of the deposits as required under s. 58A(4) of the Act, they are
alleged to have rendered themselves liable for punishment under s. 58A(5)(b) of
the Act.
To
quash these proceedings, the first two accused have filed this petition
contending that no fresh deposits were received as alleged by the complainant
and that only the old deposits were renewed. It is further contended that the
prosecution is barred by limitation. There is no force in the first contention,
because when the deposits matured prior to the relevant date or even
thereafter, the amounts should have been repaid to the depositors. Instead of
repaying the amount, the petitioners have kept the amount and have issued fresh
deposit receipts. This renewal amounts to receiving fresh deposits. The word
"renew" also means "to acquire again". Therefore, the
renewal amounts to receiving fresh deposits within the meaning of s. 58A of the
Act. The petitioners are, therefore, guilty of an offence under s. 58A(4)
punishable under s. 58A(5)(b) of the Act. Since the punishment for an offence
punishable under s. 58A(4) read with s. 58A(5) of the Act is more than three
years, and also fine, the prosecution is not barred by reason of the provisions
of s. 468(c) of the Code of Criminal Procedure. Having regard to the gravity
and the nature of the offence committed, I hope that adequate sentence would be
awarded if the case ends in conviction.
It is contended by the
learned counsel for the petitioners that the petitioners are trying to get
exemption under s. 58A(8) of the Act and that, till then, this petition may be
adjourned. There is no certainty that any such exemption will be granted. The
petitioners cannot use this court as a shock absorber or insulator between the
prosecution of the case and the grant of exemption by the Government. I place
on record my deep regret that this petition should have been filed merely for
the purpose of gaining time.
There is no merit in this
petition, and it is, therefore, dismissed with a direction to the trial court
to expedite the trial of the case and dispose of the same. The petitioners
shall pay the costs of the Government counsel in the instant case. Costs of the
Government counsel, Rs. 750.
[1985] 57 COMP. CAS. 787 (MAD.)
HIGH COURT OF
v.
R. Narayanaswamy
S. A. KADER, J.
September 28, 1984
R. Shanmugam for the Petitioner.
V. Gopinath for the Respondents.
Kader, J.—This is a petition to set aside the
order of the Sessions Judge,
The petitioner herein, who is the Assistant Registrar
of Companies of Tamil Nadu, Madras, has filed a complaint in the court of the
Chief Judicial Magistrate, Coimbatore, in C.C. No. 858 of 1980, against the
Southern Textiles Ltd. and its thirteen directors under s. 58A(3)(c) of the
Companies Act of 1956. The gist of the offence is that the first
accused-company had accepted deposits in excess of the limits prescribed by the
Reserve Bank of India Act, 1934, and the rules framed there under and have
failed to repay the excess on or before April 1, 1975, as required by s.
58A(3)(c) of the Companies Act. The Chief Judicial Magistrate found that there
was no sufficient ground to proceed against accused Nos. 7 to11, who are the
respondents herein and discharged them. The complainant-petitioner herein
preferred a revision before the Court of Sessions,
It is not disputed before me by the learned counsel for the petitioner that the respondents became directors of the first accused-company only from July, 1975, and they were not directors on April 1, 1975, when the excess deposits had to be returned as per s. 58A(3)(c) of the Act. It is, however, contended by him that the failure to repay the deposit on or before April 1, 1975, is a continuing offence and persons who became directors even subsequent to April 1, 1975, are liable for the default, so long as the excess deposits are not repaid. But, there is nothing in s. 58A(3)(c) or any other provision of the Act. to hold that the non-repayment of the excess deposits on or before April 1, 1975, is a continuing offence. In CWT v. Suresh Seth [1981] 129 ITR 328 (SC), the question came up before the Supreme Court whether the failure to file a wealth-tax return by the assessee after the last date was over, was a continuing offence. It was held by the Supreme Court that such a failure gave rise to a single default and to a single penalty the measure of which, however, is geared up to the time lag between the last date on which the return has to be filed and the date on which it is actually filed. The default, if any committed, is committed on the last date allowed to file the return, the default cannot be one committed every month thereafter. The words in s. 18(1)(a) of the Act, "for every month during which the default continued" indicate only the multiplier to be adopted in determining the quantum of penalty and do not have the effect of making the default in question a continuing one. The principle enunciated therein applies on all fours to the case on hand. The failure to repay the excess deposits on or before April 1, 1975, is a single default, which gets completed on the expiry of the aforesaid period and cannot be said to be a continuing one. As the respondents herein were not directors of the first accused-company on the date of the commission of the offence, viz., April 1, 1975, they are not liable to be proceeded against.
In the result, the petition fails and is dismissed.
[1987] 61 COMP. CAS. 110 (
HIGH COURT of
v.
Registrar of Companies
SANKARI PRASAD DAS GHOSH, J.
JANUARY 14, 1986
Anjan Mukherjee and Monoranjan Daw for the petitioner.
D.N. Das and Dipak
Mukherjee for opposite party No. 1.
Samir Chatterjee for the
State.
Sankari Prasad Das
Ghosh, J.—A petition of complaint was
filed by opposite party No. 1, the Registrar of Companies, West Bengal, against
the accused-petitioner, Satish Kumar Jhunjhunwalla, and two other persons under
section 58A(6) of the Companies Act, 1956 (hereinafter referred to as "the
Act" for the sake of convenience), read with rule 3(2)(ii) of the
Companies (Acceptance of Deposits) Rules, 1975. The averments in the petition
of complaint were that it appeared from the return submitted by M/s. Victory
Iron Works P. Ltd. under rule 10 of the Companies (Acceptance of Deposits)
Rules, 1975, ("the Rules", for short) as on March 31, 1982, filed in
the office of the complainant on January 21, 1983, that the total amount of
deposits of the kinds referred to in rule 3(2)(ii) of the Rules was Rs. 1.92
lakhs against the total amount of Rs. 1.31 lakhs, being the aggregate of the
paid-up capital and free reserves reduced by the accumulated loss, deferred
revenue expenditure, etc., as arrived at on the lines indicated in the
Explanation to rule 3 of the Rules. These deposits to the tune of Rs. 1.92
lakhs were in contravention of rule 3(2)(ii) of the Rules far exceeding 25% of
the aggregate of the paid-up share capital and free reserves of the company,
M/s. Victory Iron Works P. Ltd., of which the petitioner-accused and the two
other accused persons mentioned in the petition of complaint were the
officers/directors at the relevant time. On the basis of these allegations in
the petition of complaint, which was filed on July 20, 1983, in the court of
the Chief Judicial Magistrate,
This petition filed for the
accused petitioner was disposed of by the learned Magistrate who was pleased to
reject the prayer of the petitioner. Thereafter, the present revisional
application, heard as a contested application, has been filed by the
accused-petitioner.
Mr. Mukherjee, the learned
advocate for the accused-petitioner, has argued that the proceedings are to be
quashed as the company, M/s. Victory Iron Works P. Ltd., has not been joined as
a party in the petition of complaint. In support of his contention, Mr.
Mukherjee has referred to the cases of Maya Chandra v. Inspector, Minimum Wages Office,
[1979] Cr L.J 534. State of
Mr. Das, the learned
counsel appearing for opposite party No. 1, has challenged both these
contentions of Mr. Mukherjee. According to Mr. Das, the decision of the Supreme
Court in the case of State of Madras v. C.V. Parekh, AIR 1971 SC 447, has been
reconsidered by the Supreme Court in the subsequent case of Sheoratan Agarwal
v. State of M.P. [1984] SCC (Crl) 620 and the latest decision of the Supreme
Court in the matter is that section 10 of the Essential Commodities Act, 1955,
does not lay down any condition that the person in charge or an officer of the
company may not be separately prosecuted, if the company itself is not
prosecuted.
Mr. Chatterjee, the learned
advocate appearing for the State, has submitted that the proceedings should not
be quashed even if the company has not been joined as a party in the petition
of complaint. According to him, directions should be given to the learned
Magistrate to see that the company is joined as a party in the petition of
complaint.
After hearing the learned
advocates for the parties, I am unable to accept the contention of Mr.
Mukherjee that the proceedings are to be quashed for non-joinder of M/s.
Victory Iron Works P. Ltd. as a party in the case. Generally, the penal
provisions in all statutes relate to persons. The word "person" is
denned in section 3(42) of the General Clauses Act, 1897, to include any
company or association or body of individuals, whether incorporated or not.
Similar is the definition of the word "person" in section 11 of the
Indian Penal Code. According to section 11 of the Indian Penal Code, the word
"person" includes any company or association or body of persons,
whether incorporated or not. In view of this comprehensive definition of the
word "person", generally, every penal provision in every statute
relating to a person includes also a company or association or body of persons,
whether incorporated or not. Nevertheless, in some special statutes, some
special penal provisions have also been specifically incorporated relating to
offences by companies. Such special provisions relating to offences by
companies are to be found in section 10 of the Essential Commodities Act, 1955,
section 17 of the Prevention of Food Adulteration Act, 1954, section 22C of the
Minimum Wages Act, 1948, etc. These special provisions regarding offences by
companies have been incorporated in such statutes by way of additional
precautions so that each and every officer of the company, be he a director or
not, is not fastened with criminal liability simply because of his relationship
with the company. To fasten such officer or director with liability in case of
any contravention by the company itself, it should be proved by the prosecution
further that such director or officer was in charge of or was responsible to
the company for the conduct of the business of the company. There is generally
a rider in all such penal provisions regarding offences by companies to the
effect that no such officer or director will be liable to any punishment if he
proves that the offence was committed without his knowledge or that he
exercised all due diligence to prevent commission of such offence. All such
special provisions in such statutes regarding offences by companies are by way
of additional precaution to save the officers or directors of the company, who
would otherwise be liable on the basis of the other penal provisions in each of
such statutes. It was in this context that the Supreme Court first decided in
the case of C.V. Parekh, AIR 1971 SC 447, that the manager or director of a
company could not be convicted by applying section 10 of the Essential
Commodities Act as liability of persons in charge can arise under that section
only when the contravention is by the company itself. If the contravention is
not by the company but by other persons, be he a director or officer or other
employee of a company, he can be prosecuted under the other general penal
provisions in each of such statutes. This position has been clarified by the
Supreme Court in the subsequent decision in the case of Sheoratan Agarwal
[1984] SCC (Cr) 620 ; AIR 1984 SC 1824. Mr. Mukherjee has tried to argue that
the decision in the case of Sheoratan cannot have precedence over the earlier
decision of the Supreme Court in the case of C.V. Parekh, AIR 1971 SC 447, as
the decision in the case of C.V. Parekh was by three most eminent judges of the
Supreme Court and the decision in the case of Sheoratan was by two most eminent
judges of the Supreme Court. Mr. Mukherjee could not, however, show any
decision of the Supreme Court that a subsequent decision of the Supreme Court
by a lesser number of judges, clarifying an earlier decision of the Supreme
Court by a greater number of judges, is not to be followed under article 141 of
the Constitution. As the matter stands, the Supreme Court has since clarified
its earlier decision in the case of C.V. Parekh, AIR 1971 SC 447, and has held
that section 10 of the Essential Commodities Act does not lay down any
condition that the person-in-charge or an officer of the company may not be
separately prosecuted if the company itself is not prosecuted. According to the
decision in the case of Sheoratan [1984] SCC (Cr) 620; AIR 1984 SC 1824, each
or any one of the persons mentioned in section 10 of the Essential Commodities
Act may be separately prosecuted or along with the company. The only condition
precedent for such prosecution is that there should be a finding that the
contravention was by the company. In view of this decision of the Supreme Court
in the case of Sheoratan [1984] SCC (Cr) 620; AIR 1984 SC 1824, and the
disjunctive provisions in clauses (a) and (b) to section 58A(6) of the Act, the
decision of that court in the case of Maya Chandrav. Inspector, Minimum Wages
Office [1979] Cr LJ 534, or the decision in the case of Krishna Trading Co. v.
Slate of Bihar [1979] Cr LJ 760, can no longer be good law. In the case of
Municipal Corporation of Delhi v. Ram Kishan, AIR 1983 SC 67, which was a case
under the Food Adulteration Act, there was no clear allegation against the manager
or director of the company that they were responsible for conducting the
business in the disputed samples. In the present case, there are allegations in
paragraphs 5 and 8 of the petition of complaint against the accused-petitioner
and the other two accused persons. In paragraph 8 of the petition of complaint,
it has been stated that the officers/directors of the company, who are in
default for violating the provisions in rule 3(2)(ii) of the Rules, have
knowingly and wilfully contravened these provisions. Rules 4 and 4A of the
Rules show the liability of the directors in the matter. Section 5 of the Act
defines the "officer who is in default". In the circumstances, on the
basis of the decision of the Supreme Court in the case of Municipal Corporation
of Delhi v. Ram Kishan, AIR 1983 SC 67, it cannot be stated that the
proceedings against the petitioner and the other two accused of the case are to
be quashed in the absence of proper allegations against them in the petition of
complaint. As the matter stands, the proceeding cannot be quashed because the
company has not been joined as an accused in the case.
So far as the question of
limitation is concerned, it appears that the petition of complaint was filed on
July 20, 1983. The averments in the petition of complaint are that the return
for the period ending March 31, 1982, under rule 10 of the Rules was filed in
the office of the opposite party No. 1 complainant on January 21, 1983. The
learned Magistrate held that the complaint was not barred by limitation as
opposite party No. 1 came to know of the violation of rule 3(2)(ii)of the Rules
only on January 21, 1983, when the return was filed, though the return ought to
have been filed by March 31, 1982. Under section 469(1)(b) of the Criminal
Procedure Code, the period of limitation runs from the date of knowledge where
the commission of the offence was not known to the person aggrieved by the
offence. As the commission of the offence came to the knowledge of opposite
party No. 1 only on January 21, 1983, the learned Magistrate found that the
complaint filed on July 20, 1983, within six months of the knowledge about the
commission of the offence, was not barred by limitation. This is also the
argument advanced by the learned advocate for opposite party No. 1. Mr.
Mukherjee contends that when the offence for violation of rule 3(2)(ii) of the
Rules is punishable only under rule 11 of the Rules, the petition of complaint
ought to have been filed within September, 1982, for the period ending March
31, 1982, as the Registrar of Companies could have resorted to various
provisions of the Act itself to acquaint themselves with the actual state of
affairs prevailing in the company. I am unable to accept the contention of
either Mr. Mukherjee or the learned advocate for opposite party No. 1 as
regards the question of limitation. Under rule 11 of the Rules, if a company or
any other person contravenes any provision of the rules for which no punishment
is provided in the Act, the company and every officer of the company who is in
default or such other person shall be punishable with fine which may extend to
Rs. 500 and where the contravention is a continuing one, with a further fine
which may extend to Rs. 50 for every day after the first during which the
contravention continues. Both Mr. Mukherjee and the learned advocate for
opposite party No. 1 proceed on the assumption that rule 11 of the Rules will
govern the question of limitation in this case. I am unable to accept this
contention because of the expression "for which no punishment is provided
in the Act" in rule 11 of the Rules. The Rules were made by the Central
Government in consultation with the Reserve Bank of
The prayer of the
petitioner for granting special leave to appeal to the Supreme Court is
refused.
Andhra
Pradesh High Court
companies act
[2002]
36 scl 344 (ap)
HIGH COURT OF ANDHRA
PRADESH,
v.
Registrar of Companies
B.
SUDERSHAN REDDY, J.
DECEMBER
18, 2001
Section 58A, read with section 626, of the Companies
Act, 1956 - Company Deposits - Registrar of Companies filed complaint against
petitioners who were directors of company which had allegedly violated
provisions of section 58A - Petitioner, contended that complainant had not
made company as an accused, so officers alone could not be punished - Whether a
plain reading of section 58A(6)(b) would make it clear that it does not contain
a condition that prosecution of company is a sine qua non for prosecution of
every officer of company who is in default though, no doubt, a finding that
offence was committed by company is sine qua non for convicting every officer
of company who is in default - Held, yes - Whether main requirement under
section 58A is that there should be a finding that contravention was by company
before petitioner-director could be convicted and it is not necessary that
company itself should be prosecuted along with petitioners - Held, yes -
Whether if company was not prosecuted due to any legal impediments, officer of
company could not on that score alone escape from penal liability as envisaged
under section 58A(6)(b) - Held, yes
Facts
The Registrar of the Companies (respondent)
issued a show-cause notice to the petitioner who was director of the company which
had allegedly violated provisions of section 58A(1) and (2). The petitioner
contended that as the complainant had not made the company as an accused, the
officers alone were not liable for any punishment for the offence, if any,
committed by the company and so the proceedings should be quashed.
On a criminal petition :
Held
It was difficult to discern as to why the
respondent-complainant failed to implead the company also as one of the
accused. It was not as if the company was wound up as on the date of filing of
the complaint and not in existence for whatever purposes. But the question that
fell for consideration was as to whether the complaint itself was liable to be
quashed for the reason of non-impleadment of the company in the array of
parties as an accused.
A true and fair construction of sub-section
(6) of section 58A would make it clear that the company and every officer of
the company shall be punishable where a company accepts or invites, or allows
or causes any other person to accept or invite on its behalf, any deposit in
excess of the limits prescribed under sub-section (1) of section 58A or in
contravention of the manner or condition prescribed under that sub-section or
in contravention of the provisions of sub-section (2), as the case may be.
Sub-section (6)(a) declares that the company shall be punishable, whereas
sub-section (6)(b) declares that every officer of the company who is in default
shall be punishable. One is not concerned with the details of the punishment
to be imposed upon the company and every officer of the company who is in
default. Both the company and every officer of the company are liable to be
punished. It is not as if the company alone is liable to be punished. The
language of section 58A(6)(a) and (b) does not justify the submission made by
the petitioner. For the contraventions prescribed under sub-section (1) of
section 58A or for contravention of the provisions of sub-section (2) of
section 58A, not only the company, but also every officer of the company who is
in default should be punished. Therefore, the prosecution launched against the
petitioner herein, did not suffer from any incurable legal infirmity. As held
by the Supreme Court in Sheoratan Agarwal v. State of
It may have to be borne in mind that the
company is a juristic person. It is always represented by its chosen
representative. In the instant case, petitioner No. 1 was the Managing
Director. Petitioner No. 2 was the Director of the company and was in charge of
the day-to-day affairs of the company along with the first petitioner. In the
circumstances, it would not be difficult for them to plead and show that the
company itself had not committed any offence. The situation would have been the
same even if the company had been arrayed as one of the accused. But, if the
company was not prosecuted due to any legal impediments, the officers of the
company could not on that score alone escape from the penal liability as
envisaged under section 58A(6)(b).
Accordingly, the petition was to be dismissed.
Cases referred to
Sheoratan Agarwal v. State of
C. Praveen Kumar for the Petitioner. C.V. Ramulu for
the Respondent.
Order
This is an application filed by the
petitioners under section 482 of the Code of Criminal Procedure to quash the
proceedings in C.C. No. 29 of 1998 on the file of the learned Special Judge for
Economic Offences,
2. The
first respondent-Registrar of Companies filed a complaint against the
petitioners herein under section 58A(6) of the Companies Act, 1956 (‘the Act’)
read with rule 11 of the Companies (Acceptance of Deposits) Rules, 1975 (‘the
Rules’).
3. Petitioner
No. 1 is the Managing Director and petitioner No. 2 is the director of the
company known as ‘Commercial Agro Products Private Limited’, which was
incorporated on 21-7-1993. In the complaint filed by the first respondent, it
is alleged that the respondent-complainant observed from the balance sheet as
at 31-3-1995 and 31-3-1996 the company have under the guise of sheep units and
through other schemes invited and accepted deposits from the public and the
amounts outstanding under the above heads in the balance sheet as at 31-3-1995
and 31-3-1996 are Rs. 10.51 crores and Rs. 10.44 crores respectively. It is the
case of the respondent-complainant that the aforesaid amounts were accepted by
the said company without complying the requirements of advertisement limits as
stipulated under section 58A(1) and (2). The company did not comply with the
Rules of the Companies (Acceptance of Deposits) Rules, 1975 which stipulate
the requirements of maintenance of liquid assets, the limits up to which the
deposits can be invited and accepted, filing of text of advertisement/statement
in lieu of advertisement, maintenance of deposits and filing of return of
deposits etc.
4. The
first respondent-Registrar of the Companies issued a show-cause notice to the
petitioners on 17-11-1997 as to why legal action should not be initiated for
the said contravention. The first petitioner herein sent a reply stating that
the proceedings under the Act have to come to an end consequent upon the orders
of the High Court in C.A. No. 420 of 1997, dated 24-7-1997 resulting in the
appointment of the official liquidator as provisional liquidator.
5. It
is the case of the first respondent-complainant that the default pertains to
prior to liquidation proceedings and, therefore, the plea taken by the first
petitioner is not tenable in law. In the circumstances, the first
respondent-complainant filed a complaint under section 58A(6) read with rule 11
against the petitioners for contravention of the provisions of section 58A(1)
and (2) and rules 3, 3A, 3(2)(i), 3(2)(ii), 4/4a, 7, 8 and 10 of the Rules.
This in precise is the case of the respondent-complainant.
6. In
this petition, the learned senior counsel, Sri C. Padmanabha Reddy, submits
that the complaint filed by the respondent-complainant suffers from incurable
legal infirmities and, therefore, the same is liable to be quashed. It is
contended that the company received amounts from unit holders by way of
advances to render service to the units held by the unit holders for an agreed
service charges in the course of the business of the company and such amounts
cannot be characterised as deposits. The company did not accept any deposits
and it received only advances which will fall under exemption of rule 2(b)(vi)
of the Rules. It is submitted that section 58A and the rules made thereunder do
not apply to the facts on hand even if the allegations and accusations made in
the complaint are taken on their face value as true.
7. The
question as to whether the company received the amounts from the unit holders
by way of advances to render the services or the company through various
schemes invited and accepted deposits from the public to a tune of Rs. 10.51
crores and Rs. 10.44 crores as on 31-3-1995 and 31-3-1996 respectively cannot
be gone into by this court in this summary proceeding. It is for the
prosecution to establish the case against the petitioners. The plea of the
petitioners herein that what they have accepted is not the deposit but only
towards the advance which falls under exemption of rule 2(b)(vi) may be their
defence. The question as to whether the company received the amounts as
advances from the unit holders for the rearing of sheep for the purpose of the
business of the company for rendering services is a question of fact. It can
only be decided after the parties let in their evidence. In the circumstances,
this court at this stage does not propose to express any opinion whatsoever. No
relief could be granted to the petitioners on this count. The complaint itself
cannot be quashed on that ground. The issue is left open.
8. Sri
C. Padmanabha Reddy, the learned senior counsel, however, further contends that
even if at all under section 58A(6) the company must be punished and then every
officer of the company who is in default shall be liable to be punished, but in
the present case the complainant has not made the company as an accused and in
the absence of impleadment of the company as one of the accused, the officers
alone are not liable for any punishment for the offence if any committed by
the company by the respondent-complainant.
9. In
order to appreciate the said contention, it is required to notice the averment
made in the complaint, which is to the following effect :
“That the complainant herein respectfully
submits that by an order dated 24-7-1997 made in C.P. No. 83 of 1993, the
Hon’ble High Court of AP,
However, in the relief portion, the
complainant prayed the court to take the case on file for the said default and
punish the company according to law; and to pass such order/orders under
section 626 of the Act as to costs of these proceedings as might appear just
and proper to the Court.
10. It
is difficult to discern as to why the respondent-complaint failed to implead
the company also as one of the accused. It is not as if the company was wound
up as on the date of filing of the complaint and not in existence for whatever
purposes. But the question that falls for consideration is as to whether the
complaint itself is liable to be quashed for the reason of non-impleadment of
the company in the array of parties as an accused. However, the learned senior
counsel contends that it is the company which is liable to be punished where
such a company accepts or invites, or allows or causes any other person to
accept or invite on its behalf, any deposit in excess of the limits prescribed
under sub-section (1) or in contravention of the manner or condition prescribed
under that sub-section or in contravention of the provisions of the sub-section
(2). In the absence of the company as an accused, which is in default, the
officers of the company cannot be
punished.
11. Section
58A mandates that no company shall invite, or allow any other person to invite
or cause to be invited on its behalf, any deposit unless such deposit is
invited or cause to be invited in accordance with the rules. Sub-section (6) of
section 58A is relevant for our present purpose, which reads :
“(6) Where a company accepts or invites, or allows
or causes any other person to accept or invite on its behalf, any deposit in
excess of the limits prescribed under sub-section (1) or in contravention of
the manner or condition prescribed under that sub-section or in contravention
of the provisions of sub-section (2), as the case may be,—
(a) the company shall be punishable,—
(i) where such contravention relates to the acceptance of any
deposit, with fine which shall not be less than an amount equal to the amount
of the deposit so accepted;
(ii) where such contravention relates to the invitation of any
deposit, with fine which may extend to ten lakh rupees but shall not be less
than fifty thousand rupees;
(b) every officer of the company who is in default shall be
punishable with imprisonment for a term which may extend to five years and shall also be liable to
fine.”
12. On
a true and fair construction of sub-section (6) of section 58A would make it
clear that the company and every officer of the company shall be punishable
where a company accepts or invites, or allows or causes any other person to
accept or invite on its behalf, any deposit in excess of the limits
prescribed under sub-section (1) of
section 58A or in contravention of the manner or condition prescribed under
that sub-section or in contravention of the provisions of sub-section (2), as
the case may be. Sub-section (6)(a) declares that the company shall be
punishable, whereas sub-section (6)(b) declares that every officer of the
company who is in default shall be punishable. We are not concerned with the
details of the punishment to be imposed upon the company and every officer of
the company who is in default. Both the company and every officer of the
company are liable to be punished. It is not as if the company alone is liable to
be punished. The language of section 58A(6)(a) and (b) does not justify the
submission made by the learned senior counsel.
13. The
Supreme Court in Sheoratan Agarwal v. State of Madhya Pradesh AIR 1984 SC 1824
while interpreting section 10 of the Essential Commodities Act, 1955 dealt with
more or less similar contentions and declared the law in the following terms :
“The section appears to our mind to be plain
enough. If the contravention of the order made under section 3 is by a Company,
the persons who may be held guilty and punished are (1) the company itself (2)
every person who, at the time the contravention was committed, was in charge
of, and was responsible to, the Company for the conduct of the business of the
Company whom for short we shall describe as the person-in-charge of the
Company, and (3) any director, manager, secretary or other officer of the
Company with whose consent or connivance or because of neglect attributable to
whom the offence has been committed, whom for short we shall describe as an
officer of the Company. Any one or more or all of them may be prosecuted and
punished. The Company alone may be prosecuted. The person-in-charge only may be
prosecuted. The conniving officer may individually be prosecuted. One, some or
all may be prosecuted. There is no statutory compulsion that the
person-in-charge or an officer of the Company may not be prosecuted unless he
be ranged alongside the Company itself. Section 10 indicates the persons who
may be prosecuted where the contravention is made by the Company. It does not
lay down any condition that the person-in-charge or an officer of the company
may not be separately prosecuted if the Company itself is not prosecuted. Each
or any of them may be separately prosecuted or along with the Company. Section
10 lists the person who may be held guilty and punished when it is a Company
that contravenes an order made under section 3 of the Essential Commodities
Act. Naturally, before the person-in-charge or an officer of the Company is
held guilty in that capacity it must be established that there has been a
contravention of the Order by the Company. That should be axiomatic and that is
all that the Court laid down in State of Madras v. C.V. Parekh AIR 1971 SC 447
as a careful reading of that case will show and not that the person-in-charge
or an officer of the Company must be arraigned simultaneously along with the
Company if he is to be found guilty and punished. The following observations
made by the Court clearly bring out the view of the Court (Para 3):—
‘It was urged that the two respondents were in
charge of, and were responsible to, the company for the conduct of the business
of the company and, consequently they must be held responsible for the sale and
for thus contravening the provisions of clause 5 of the Iron and Steel
(Control) Order. This argument cannot be accepted, because it ignores the first
condition for the applicability of section 10 to the effect that the person
contravening the order must be a company itself. In the present case, there is
no finding either by the Magistrate or by the High Court that the sale in
contravention of clause 5 of the Iron & Steel (Control) Order was made by
the Company. In fact, the Company was not charged with the offence at all. The
liability of the persons in charge of the Company only arises when the
contravention is by the Company itself. Since, in this case, there is no
evidence and no finding that the Company contravened clause 5 of the Iron &
Steel (Control) Order the two respondents could not be held responsible. The
actual contravention was by Kamdar and Villabhadas Thacker and any
contravention by them would not fasten responsibility on the respondents.’
The sentences underscored by us clearly show
that what was sought to be emphasised was that there should be a finding that
the contravention was by the Company before the accused could be convicted and
not that the Company itself should have been prosecuted along with the
accused. We are therefore clearly of the view that the prosecutions are
maintainable and that there is nothing in section 10 of the Essential
Commodities Act which bars such prosecutions.” (p. 1825)
14. The
same principle would apply for interpretation of section 58A(6)(b). For the
contraventions prescribed under sub-section (1) of section 58A or for
contravention of the provisions of sub-section (2) of section 58A, as the case
may be, not only the company, but also every officer of the company who is in
default shall be punished. Therefore, the prosecution launched against the
petitioners herein, in my considered opinion, does not suffer from any
incurable legal infirmity. As held by the Supreme Court in Sheoratan Agarwal’s
case (supra) what is required is that there should be a finding that the
contravention was by the company before the petitioners could be convicted and
it is not necessary that the company itself should be prosecuted along with the
petitioners. It would have been perfectly open to the respondent-complainant
to prosecute the company along with the petitioners herein. But, for whatever
reason, the respondent-complainant had chosen not to prosecute the company and
some reasons are stated in the complaint itself, about which, it is not
necessary to express any opinion at this stage. But the prosecution launched
against the petitioners herein is not vitiated on the ground that the
complainant failed to prosecute the company along with the petitioners.
15. In
Anil Hada v. Indian Acrylic Limited [2000] 23 SCL 240, the Supreme Court while
interpreting sections 138 and 141 of the Negotiable Instruments Act, 1881 held
:
“Thus, when the drawer of the cheque who falls
within the ambit of section 138 of the Act is a human being or a body corporate
or even firm, prosecution proceedings can be initiated against such drawer. In
this context the phrase ‘as well as’ used in sub-section (1) of section 141 of
the Act has some importance. The said phrase would embroil the persons
mentioned in the first category within the tentacles of the offence on a part
with the offending company. Similarly the words ‘shall also’ in sub-section (2)
are capable of bringing the third category persons additionally within the
dragnet of the offence on an equal par. The effect of reading section 141 is
that when the company is the drawer of the cheque such company is the principal
offender under section 138 and the remaining persons are made offenders by
virtue of the legal fiction created by the Legislature as per the section.
Hence the actual offence should have been committed by the company, and then
alone the other two categories of persons can also become liable for the
offence.
If the offence was committed by a company it
can be punished only if the company is prosecuted. But instead of prosecuting
the company if a payee opts to prosecute only the persons falling within the
second or third category the payee can succeed in the case only if he succeeds
in showing that the offence was actually committed by the company. In such a
prosecution the accused can show that the company has not committed the
offence, though such company is not made an accused and, hence, the prosecuted
accused is not liable to be punished. The provisions do not contain a condition
that prosecution of the company is sine qua non for prosecution of the other persons who fall within the second and the
third categories mentioned above. No doubt a finding that the offence was
committed by the company is sine qua non for convicting those other persons.
But if a company is not prosecuted due to any legal snag or otherwise, the other
prosecuted persons cannot, on that score alone, escape from the penal
liability created through the legal fiction envisaged in section 141.”
16. The
learned senior counsel, Sri C. Padmanabha Reddy, however, made an attempt to
distinguish the Act which is not present
in section 58A 6(b). But, none less the ratio of the judgment that ‘the
provisions do not contain a condition that prosecution of the company is sine
qua non for prosecution of the other persons who fall within the second and the
third categories mentioned under section 141 of the Negotiable Instruments Act’
would equally be applicable to the case on hand.
17. Here
also a plain reading of section 58A6(b) would make it clear that it does not
contain a condition that the prosecution of the company is sine qua non for
prosecution of every officer of the company who is in default. No doubt, a
finding that the offence was committed by the company is sine qua non for
convicting every officer of the company who is in default. In the absence of
a finding that the offence was committed by the company, the officers of the
company alone cannot be convicted. Such findings can be recorded even in the
absence of the company being arrayed as an accused in the complaint. It shall
always be open to the officers of the company to plead and take defence and
contend that the company itself has not committed the alleged offence even in
the absence of the company being impleaded as one of the accused.
18. It
may have to be borne in mind that the company is a juristic person. It is
always represented by its chosen representative. In the present case,
petitioner No. 1 is the Managing Director. Petitioner No. 2 is the Director of
the company and is in charge of the day-to-day affairs of the company along
with the first petitioner. In the circumstances, it would not be difficult for
them to plead and show that the company itself has not committed any offence. The situation
would have been the same even if the company has been arrayed as one of the
accused.
But, if the company is not prosecuted due to
any legal impediments, the officers of the company cannot on that score alone
escape from the penal liability as envisaged under section 58A(6)(b).
19. The
question as to whether the company has committed any offence punishable for the
contravention of section 58A, is to be gone into by the trial court.
The observations, if any, made in this order
are confined only for the purpose of disposal of this application. The learned
Special Judge shall proceed with the enquiry and trial in accordance with law
uninfluenced by the observations, if any, made in this order except with regard
to the declaration of law.
20. The Criminal Petition shall
accordingly stand dismissed. Consequently, the interim stay earlier granted by
this Court shall stand vacated.
Karnataka High Court
SICA
[2001] 32 SCL 208 (Kar.)
High Court of Karnataka
Deepak Insulated Cable
Corporation Ltd.
v.
Y. Bhaskar Rao, CJ.
And A.V. Srinivasa Reddy, J.
January 5,
2000
Section 22 of the
Sick Industrial Companies (Special Provisions) Act, 1985, read with section
58A(9) of the Companies Act, 1956 - Suspension of legal proceedings - Whether
provisions of section 22 are attracted to bar proceedings under section 58A(9)
by depositors for return of their deposits - Held, no
Section 58A of the
Companies Act, 1956, read with section 22 of the Sick Industrial Companies Act,
1985 - Public deposits - Whether provisions of section 22 of the SICA are
attracted to bar proceedings under section 58A(9) of the Companies Act, 1956 by
depositors for return of their deposits - Held, no
Words and phrases -
‘suit for recovery of money’ occurring in section 22(1) of the Sick Industrial
Companies Act, 1985
Interpretation of
statutes - Rule of liberal interpretation
The appellant, a
public limited company, became a sick industrial company. When proposals for
its revival were under consideration of BIFR, some of the depositors who had
deposited money in the company filed application before the CLB under section
58A(9) of the Companies Act. The CLB allowed the application and held that the
provisions of section 22 of the SICA were not attracted to the proceedings
under section 58A(9). The writ petition filed by the appellant, challenging
this order was dismissed by the single judge. In the instant appeal the
appellant questioned the correctness and validity of the order passed by the
single Judge.
The question for consideration
was whether the section 22 extends to and attracts proceedings under section
58A(9). The single Judge after elaborate consideration of the matter answered
the question in the negative.
The only
facet of section 22(1) that could be said to be of some relevance to the
present appeal was the relief for recovery of money that is prohibited under
the Act in respect of a company under revival by the BIFR. The question was
whether the claim for return of deposit could be termed as ‘suit for recovery
of money’ against the company. If the answer was in the affirmative, then the
appellant-company would succeed and not otherwise.
The term
“deposit” has been defined by the Explanation to section 58A of the 1956 Act as
a deposit of money with a company including an amount borrowed by it but
excluding such categories of amount as may be prescribed in consultation with
the Reserve Bank of
A
deposit by the depositors is not a sum lent to the company but is a sum
deposited with the company to be held in trust by the company till the time of
maturity. It is not a loan in the strict sense of the term. Therefore, any
claim made for return of a deposit made with the company cannot be termed as a
suit for recovery of money due. Section 22(1) prohibiting as it does the taking
up of certain proceedings against the company, without the consent of the
Board, which proceedings in the natural course of things can be resorted to
against the company without any reservation whatsoever by the person or
persons interested, it goes without saying that the prohibitions contained in
section 22(1) do not lend themselves to any liberal interpretations. The said
provisions must be interpreted in a limited sense and cannot be said to cover
situations where there really is no element of execution, distress or the like
against any property owned by the industrial company. Interpreting the term “no
suit for recovery of money” thus, it is found that it certainly will not cover a
simple claim made by depositors for the return of their deposits after
maturity. As held by the apex Court in the decision above, it is a sum kept
with the company by the depositors in trust for return after maturity. The
single judge had on proper and detailed appreciation of the matter had come to
the correct conclusion. The reasons assigned by the single judge for arriving
at the said conclusion were well-founded and did not call for any interference.
In the
result, for the reasons stated above, no merit was found in the appeal and it
was, accordingly, dismissed.
Case referred to
Vijay Mills Co. Ltd.
v. State of
G.
Krishna Murthy for the Applicant. Ashok Haranahalli for the Respondent.
Judgment
Reddy,
J. -
In this appeal, the appellant calls in question the correctness and validity of
the order passed by the learned single judge in W.P. No. 16606 of 1990.
2. The facts in brief are :
The appellant is a
public limited company declared to be a sick industry by the Board for
Industrial and Financial Reconstruction (‘BIFR’) under the provisions of the
Sick Industrial Companies (Special Provisions) Act, 1985 (‘the Act’ for short).
The Board is considering the proposal for revival. When the revival proposals
were under the consideration of BIFR some of the depositors who deposited money
with the appellant-company filed applications before the CLB under section
58A(9) of the Companies Act, 1956. The CLB allowed the applications of the
depositors holding that the provisions of section 22 are not attracted to the
proceedings under section 58A(9) of the Companies Act. Aggrieved, the appellant
filed the writ petition. The learned single judge dismissed the writ petition.
Hence, the appeal.
3. We have heard learned counsel on both
sides.
4. The question for our
consideration is whether the section 22 extends to and attracts proceedings
under section 58A(9).
5. The learned single judge
after elaborate consideration of the matter answered the question in the
negative. In order to appreciate the rival contentions of learned counsel for
the parties and answer the question, it is necessary to extract section 22(1).
It reads :
“22(1). Suspension
of legal proceedings, contracts, etc. — Where in respect of an industrial company,
an inquiry under section 16 is pending or any scheme referred to under section
17 is under preparation for consideration or a sanctioned scheme is under
implementation or where an appeal under section 25 relating to an industrial
company is pending, then, notwithstanding, anything contained in the Companies
Act, 1956 (1 of 1956), or any other law or the memorandum and articles of
association of the industrial company or any other instrument having effect
under the said Act or other law, no proceeding for the winding up of the
industrial company or for execution, distress or the like against any of the
properties of the industrial company or for the appointment of a receiver in
respect thereof and no suit for the recovery of money or for the enforcement of
any security against the industrial company or of any guarantee in respect of
any loans or advance granted to the industrial company shall lie or be
proceeded with further, except with the consent of the Board, or, as the case
may be, the appellate authority.” [Emphasis supplied]
6. The only facet of section
22(1) of the Act that can be said to be of some relevance to the present appeal
is the relief for recovery of money that is prohibited under the Act in respect
of a company under revival by the BIFR. The question is whether the claim for
return of deposit could be termed as ‘suit for recovery of money’ against the
company. If the answer is in the affirmative then the appellant-company would
succeed and not otherwise.
7. The term ‘deposit’ has been
defined by the Explanation to section 58A as a deposit of money with a company
including an amount borrowed by it but excluding such categories of amount as
may be prescribed in consultation with the Reserve Bank of India. The learned
single judge has considered this question in detail. He has placed reliance on
the decision of the Supreme Court (sic) in Vijay Mills Co. Ltd. v. State of
Gujarat [1990] 68 Comp. Cas. 597. The apex court had occasion in that case to
decide the question whether the provisions contained in section 22(1) extended
to criminal prosecution of the company for its failure to pay the amount of
sales tax recovered by it on behalf of the Government from the customers. The
apex court held that the amount recovered from the customers by the company
does not belong to it but it is held in trust to be passed over to the
Government and in that view of the matter held that section 22(1) would not
extend to the criminal prosecution for failure to pay the sales tax as the same
does not come under the ambit of section 22(1).
8. A deposit by the
depositors is not a sum lent to the company but is a sum deposited with the
company to be held in trust by the company till the time of maturity. It is not
a loan in the strict sense of the term. Therefore, any claim made for return of
a deposit made with the company cannot be termed as a suit for recovery of
money due. Section 22(1) prohibiting as it does the taking up of certain
proceedings against the company, without the consent of the Board, which proceedings
in the natural course of things can be resorted to against the company without
any reservation whatsoever by the person or persons interested, it goes
without saying that the prohibitions contained in section 22(1) do not lend
themselves to any liberal interpretation. The said provisions must be
interpreted in a limited sense and cannot be said to cover situations where
there really is no element of execution, distress or the like against any
property owned by the industrial company. Interpreting the term “no suit for
recovery of money” thus, we find that it certainly would not cover a simple
claim made by depositors for the return of their deposits after maturity. As
held by the apex court in the decision, supra, it is a sum kept with the company
by the depositors in trust for return after maturity. The learned single judge
has no proper and detailed appreciation of the matter has come to the correct
conclusion. The reasons assigned by the learned single judge for arriving at
the said conclusion are well-founded and do not call for any interference.
9. In the result, for the reasons stated
above, we find no merit in the appeal and it is, accordingly, dismissed.
[1995]
83 COMP. CAS. 616 (MAD.)
HIGH COURT OF
v.
JANARTHANAM,
J.
Criminal
Miscellaneous Petition Nos. 4784 and 4788 of 1987
DECEMBER
18, 1992
JUDGMENT
JANARTHANAM,
J. - Ramachandran Chemicals
Pvt. Ltd. (for short "the company") is a company incorporated under
the Companies Act, 1956 (for short "the Act"), having its registered
office located at No. 42, Rajaji road, Madras-1. Sri Jahanbus Harmushaw
Tarapore, Sri Narayanswamy Srinivasan, Sri B. Sivanthi Adityan, Sri
Narayanswamy Ramachandran, Sri K. R. Ramabhadran and Sri K. Ramachandran are
the directors of the said company.
Under rule 3A
of the Companies (Acceptance of Deposits) Rules, 1975 (in short "the
Rules'), every company shall before April 30 of each year, deposit or invest,
as the case may be, a sum which shall not be less than 10 per cent. of the
amount of its deposits maturing during the year ending on March 31, next
following in any one or more of the four methods of investments prescribed
therein. The company was stated to have committed defaults in complying with
the provisions of rule 3A thereof in respect of deposits maturing during the
years ending with March 31, 1979, 1980, 1981 and 1982. The directors who are,
in terms of sub-section (30) of section 2 of the Act, officers of the company,
were stated to have committed such defaults knowingly and wilfully and thus
rendered themselves liable to punishment under rule 11 for contravention of
rule 3A thereof.
A show-cause
notice was stated to have been issued to the company and its directors bringing
to their notice the contravention of the said rule. No convincing reasons were
stated to have been given either by the company or its directors for such
contravention.
The company
and its directors were stated to have not only accepted, renewed and held
deposits in excess of the prescribed limits but also failed to ensure repayment
of such deposits within the time prescribed and thus contravened the provisions
of sub-sections (1) and (4) punishable under sub-sections (5) and (6) of
section 58A of the Act.
The Additional
registrar of Companies, having his office at "Shastri Bhavan", 26,
Haddows Road, Madras-6, laid two complaints in C. C. Nos. 1291 and 1292 of
1983, on the file of the Additional Chief Metropolitan Magistrate (E.O. No. 1),
Egmore, Madras, arraigning the company and its directors as accused Nos. 1 to 7
for alleged violations of infractions of rule 3A punishable under rule 11 of
the Rules (former complaint) and sub-sections (1) and (4) punishable under
sub-sections (5) and (6) of section 58A of the Act (latter complaint) alleging
that the question of limitation will never arise for consideration as the
contraventions complained of are continuing offences.
It is
represented at the Bar that all the accused excepting Sri B. Sivanthi Adityan
(accused No. 4) admitted the offences and consequently they were sentenced to
fine in a specified amount.
Before ever
the trial commenced, accused No. 4. Sri B. Sivanthi Adityan, came forward with
the present actions to quash the criminal proceedings initiated against him,
invoking the inherent jurisdiction of this court under section 482 of the Code
of Criminal Procedure, 1973 (for short "the Code").
Mr. V.
Shanmugham, learned counsel appearing for the petitioner - accused No. 4, would
press into service, in a bid to quash the criminal proceedings the following
two points for consideration :
(1) The
prosecutions launched are barred by limitation; and
(2) No
show-cause notice had been served upon the petitioner - accused No. 4 and, therefore,
he could, by no stretch of imagination, be construed as an "officer in
default" in terms and tenor of section 5 of the Act.
Mr. K. Illias
Ali, learned Additional Central Government Standing Counsel, would, however,
repel those submissions.
The period of
limitation for taking cognizance of a complaint had been provided for under
section 468 of the Code. The limitation prescribed therefor is relatable to the
quantum of sentence for the offences in respect of which prosecution had been
launched. The period of limitation shall be six months, if the offence is
punishable with fine only; one year, if the offence is punishable with
imprisonment for a term not exceeding one year and three yeas, if the offence
is punishable with imprisonment for a term exceeding one year but not exceeding
three years. Pertinent it is to note that no period of limitation whatever had
been prescribed as respects offences punishable with imprisonment exceeding
three years.
Infractions or
violations of sub-sections (1) and (4) are respectively punishable under
sub-sections (6) and (5) of section 58A of the Act. The punishment provided in
the said sub-sections (5) and (6) is imprisonment which may extend to five
years, i.e., exceeding three years. Therefore, there can be nor bar of
limitation whatever for taking cognizance of complaints involving those
offences. As such, it cannot at all be stated that taking cognizance of the
complaint in C. C. No. 1292 of 1983, by the court below was beyond the period
of limitation.
The infraction
or violation of rule 3A is punishable under rule 11 of the Rules with fine
which may extend to Rs. 500. For such an offence punishable with fine the
period of limitation prescribed under clause (a) of sub-section (2) of section
468 of the Code is only six months. The complaint having been taken cognizance
of on December 13, 1983, for the alleged violations during the years ending
with March 31, 1979, 1980, 1981 and 1982, in the sense of not making deposits
or investment as required thereof on or before April 30, of the respective
yeas, that is, beyond the period of six months, is clearly barred by
limitation.
Learned
Additional Central Government Standing Counsel would, however, contend that
such a violation or contravention is a continuing offence, in respect of which
no question of limitation can arise for consideration.
Then the moot
question that arises for consideration is whether such a violation is a
continuing offence.
Useful
reference may be made to certain precedents emerging from the apex court of
this country to resolve the tangle posed in this case. In State of Bihar v.
Deokaran Nenshi [1973] 1 SCWB 66; AIR 1973 SC 908. Their Lordships J. M. Shelat
and H. R. Khanna JJ. explained the concept of a continuing offence in paragraph
5, which is reflected as follows (at page 909) :
"A
continuing offence is one which is susceptible of continuance and is
distinguishable from the one which is committed once and for all. It is one of
those offence which arises out of a failure to obey or comply with a rule or
its requirement and which involves a penalty, the liability for which continues
until the rule or its requirement is obeyed or complied with. On every occasion
that such disobedience or non-compliance occurs and recurs, there is the
offence committed. The distinction between the two kinds of offences is between
an act or omission which constitutes an offence once and for all and an act or
omission which continues, and therefore constitutes a fresh offence every time
or occasion on which it continues. In the case of a continuing offence, there
is thus the ingredient of continuance of the offence which is absent in the
case of an offence which takes place when an act or omission is committed once
and for all."
In Maya Rani
Punj v. CIT [1986] 157 ITR 330; AIR 1986 SC 293, the year of assessment was
1961-62. The return was due by September 28, 1961. But the same was neither
filed within time; nor was any extension asked for. The assessee filed the
return on May 3, 1962, beyond more than seven months of the due date. With
effect from April 1, 1962, the Income-tax Act, 1961 (for short "the 1961
Act") had come into force. The Income-tax Officer took proceedings under
section 271(1) (a) of the 1961 Act and imposed a penalty of Rs. 4,060 for failure
to furnish the return within the time on a finding that the assessee had not
been prevented by any reasonable cause from complying with the statutory
obligation to make the return. The assessee challenged the imposition of
penalty by preferring an appeal to the Appellate Assistant Commissioner who
refused to interfere and dismissed the appeal. On further appeal, the Appellate
Tribunal held that penalty was leviable under the 1961 Act but the amount of
penalty had to be quantified according to the provisions of section 28 of the
Indian Income-tax Act, 1922 (for short "the 1922 Act"). Applying the
provisions of the 1922 Act, the Tribunal reduced the penalty to Rs. 400.
(a) At the
instance of the Revenue the following question was referred to the High Court
under section 256(1) of the 1961 Act (at page 3320 :
"Whether,
on the facts and in the circumstances of the case, the Tribunal was in law
competent to reduce the penalty levied under section 271(1) (a) to a figure
lower than the sum equal to 2 per cent. of the tax for every month during which
the default continued but not exceeding the aggregate of 50 per cent. of the
tax ?"
The High Court
answered the reference in favour of the Revenue and against the assessee. The
aggrieved assessee, therefore, agitated the matter before the Supreme Court.
(b) In the
backdrop of such a factual situation, the Supreme Court came to consider the
question as to whether the default committed in filing the return within the
time stipulated for such filing has to be construed in law as a continuing
default.
(c) In
answering the question, the Supreme Court expressed thus (at pages 338, 340,
341) :
"The
distinctive nature of a continuing wrong is that the law that is violated makes
the wrong-doer continuously liable for penalty. A wrong or default which is
complete but whose effect may continue to be felt even after its completion is,
however, not a continuing wrong or default. It is reasonable to take the view
that the court should not be eager to hold that an act or omission is a continuing
wrong or default unless there are words in the statute concerned which make out
that such was the intention of the Legislature .... In Words and Phrases,
permanent edition, under the head "Continuing offence", instances
have been given which indicate that as long as the default continues, the
offence is deemed to be repeated and, therefore, it is taken as a continuing
offence. As has been appropriately indicted in the Corpus Juris Secundum,
volume 85, at page 1027, accrual of penalty depends on the terms of the statute
imposing it and in view of the language used in section 271(1) (a) of 1961 Act,
the position is beyond dispute that the Legislature intended to deem the
non-filing of the return to be a continuing default - the wrong for which
penalty is to be visited, commences from the date of default and continues
month after month until compliance is made and the default comes to an end. The
rule of de die in diem is applicable not on daily but on monthly basis .....
The imposition of penalty not confined to the first default but with reference
to the continued default is obviously on the footing that non-compliance with
the obligation of making a return is an infraction as long as the default
continued. Without sanction of law, no penalty is impossible with reference to
the defaulting conduct. The position that penalty is impossible not only for
the first default but as long a the default continues and such penalty is to be
calculated at a prescribed rate on monthly basis is indicative of the legislative
intention in unmistakable terms that as long as the assessee does not comply
with the requirements of law, he continues to be guilty of the infraction and
exposes himself to the penalty provided by law."
In the case of
State of Bihar, AIR 1973 SC 908, the respondents were the owners of a stone
quarry. They failed to furnish to the Chief Inspector the annual returns for
the year 1959 by January 21, 1960. On March 28, 1960, the Chief Inspector drew
their attention to the said failure and warned the respondents that if they
failed to furnish the returns within two weeks from the date of the said
letter, i.e., by April 11, 1960, proceedings would be instituted against them
under the Act. On their failure to do so, despite the said warning, a complaint
was filed in the Court of the Magistrate, Dhanbad, on April 12, 1961.
(a) Section 66
of the Mines Act, 1952, provides that a person omitting to file any return,
notice etc., in the prescribed form or manner or at or within the prescribed
time required by or under the Act to be made or furnished shall be punishable
with fine which may extend to Rs. 1,000. Section 79, however, lays down that no
court shall take cognizance of any offence under this Act unless a complaint
thereof has been made within six months from the date on which the offence is
alleged to have been committed or within six months of the date of which the
alleged commission of the offence came to the knowledge of the Inspector,
whichever is later. The Explanation to the section provides that if the offence
in question is a continuing offence the period of limitation shall be computed
with reference to every point of time during which the said offence continues.
Under regulation 3 of the Indian Metalliferous Mines Regulations, 1926, an
owner, agent or manager of every mine is required to forward to the District
Magistrate and to the Chief Inspector the annual returns in respect of the
preceding year in the forms prescribed therein and on or before January 21, in
each year.
(b) One of the
two questions agitated before the trial court, in the High Court and before the
apex court was whether the complaint was barred by limitation, it having been
filed more than a year after the default, which occurred on January 21, 1960.
(c) In
answering the said question the Supreme Court said in paragraph 9 thus (at page
910) :
"9.
Regulation 3 read with section 66 of the Mines act makes failure to furnish
annual returns for the preceding year by January, 21 of the succeeding year an
offence. The language of regulation 3 clearly indicates that an owner, manager,
etc., of a mine would be liable to the penalty if he were to commit an
infringement of the regulation and that infringement consists in the failure to
furnish returns on or before January 21, of the succeeding year. The
infringement, therefore, occurs on January, 21 of the relevant year and is
complete on the owner failing to furnish the annual returns by that day. The
regulation does not lay down that the owner, manager, etc., of the mine
concerned would be guilty of an offence if he continues to carry on the mine
without furnishing the returns or that the offence continues until the
requirement of regulation 3 is complied with. In other words, regulation 3 does
not render a continued disobedience or non-compliance with it an offence. As in
the case of construction of a wall in violation of a rule or a bye-law of a
local body, the offence would be complete once and for all as soon as such
construction is made, a default occurs in furnishing the returns by the prescribed
date. There is nothing in regulation 3 or in any other provision in the Act or
the Regulations which renders the continued non-compliance an offence until its
requirement is carried out."
In the case on
hand, the legislative intention expressed in rule 3A is not indicative of the
infraction or violation of such a rule as a continuing offence. To put it
otherwise, infraction or violation contemplated therein is committed once and
for all attracting penal consequences under the first limb of rule 11 alone, in
the sense of the same liable to be punished with fine, which may extend to Rs.
500. Once such an infraction or violation is not a continuing offence, it goes
without saying that the complaint, which had been taken cognizance of by the
court below on December 13, 1983, is clearly barred by time, as having been
filed beyond the period of six months from the dates of the alleged violations,
namely, March 31 of the years 1979, 1980 and 1982, in the sense of not making
deposits or investment as required thereof on or before April 30 of the
respective years.
Sub-section
(30) of section 2 of the Act defines "officer" by means of inclusive
definition and it is as under;
"2. In
this Act, unless the context otherwise requires.
(30) 'officer'
includes any director, managing agent, secretaries and treasurers, manager, or
secretary or any person in accordance with whose directions or instructions the
board of directors or any one or more of the directors is or are accustomed to
act and also includes -
(a) where the
managing agent or the secretaries and treasurers is or are a firm, any partner
in the firm;
(b) where the
managing agent or the secretaries and treasurers is or are a body corporate, any
director or manger of the body corporate but save in section 477, 478, 539,
543, 545, 621, 625 and 633 does not include an auditor."
The meaning of
"officer who is in default" is couched in section 5 (prior to
amendments) of the Act, which runs as under :
"5.
Meaning of 'officer who is in default'. - For the purpose of any provision in
this Act which enacts that an officer of the company who is in default shall be
liable to any punishment, or penalty, whether by way of imprisonment, fine or
otherwise, the expression 'officer who is in default' means any officer of the
company who is knowingly guilty of the default, non-compliance, failure,
refusal or contravention mentioned in that provision or who knowingly and
wilfully authorises or permits such default, non-compliance, failure, refusal
or contravention."
The combined
effect of sub-section (30) of section 2 and section 5 is that all the directors
of the company cannot at all the construed as "officers in default",
unless each of the directors is an "officer in default" within the
meaning of section 5 of the Act.
Learned
counsel for the petitioner would, however, contend that the petitioner-accused
No. 4 cannot at all the construed as an "officer in default" within
the meaning of section 5 of the Act, inasmuch as a show-cause notice had not at
all been served upon him before the prosecution was launched against him.
Significant it is to note here that the allegations in the complaint do reveal
the issuance of the notice to the company and all its directors and no
convincing reply came forth from either the company or any of its directors.
But the complaint is silent as to the date of service of notice on the company
and all its directors, inclusive of the petitioner-accused No. 4. In such a
circumstance, learned counsel for the petitioner asserted that no service of
notice was there on him-accused No. 4.
Since service
of notice is a crucial factor for determining the question as to whether the
petitioner-accused No. 4 could be construed as an "officer-in-default";
this court directed learned Additional Central Government Standing Counsel to
produce the file to verify the tenability or otherwise of the vociferous
contention raised by learned counsel for the petitioners. Accordingly a file
had been produced before this court for perusal. A perusal of the file reveals
that show-cause notice had in fact been served not only on the company but also
on all the directors of the company, excepting the petitioner-accused No. 4,
and the notice so sent to the petitioner-accused No. 4 had been returned as
"not found". Therefore, it is clear that there was no proper service
of notice on the petitioner-accused No. 4 before the prosecution is launched
against him.
The effect of
non-service of notice before prosecution came to be considered in the decision
in Thomas (V.M.) v. Registrar of Companies [1980] 50 Comp Cas 247 by the Kerala
High Court.
(a) In that
case, prosecution was launched against the company, its managing director and
another director. The company and its managing director pleaded guilty, but the
other director disputed his liability. The other director was also found guilty
and convicted. He preferred a revision to the High Court. The Kerala High Court
in that case found that a notice was sent to the director by the Registrar of
Companies but it was returned unserved. Taking that fact into consideration,
the Kerala High Court held that it cannot be said that in spite of the
petitioner before it having been cautioned in time, the default took place,
and, therefore, he had knowingly and wilfully authorised or permitted the
default or non-compliance.
The view thus
expressed by the Kerala High Court had been quoted with approval by Bhaskaran
J. (as he then was) a learned judge of this court in the case of Assistant
Registrar of Companies v. Southern machinery Works Ltd. [1986] 59 Comp Cas 670.
In that case, the Assistant Registrar of Companies filed complaints against
several companies and their directors under section 162 and 220 of the Act for
failure to file annual returns and balance-sheets. Notice were issued to all
the directors, which were served on them, but no reply was received from any of
the directors. Thereafter, the assistant Registrar launched prosecutions after
giving the directors sufficient opportunity. The company and the directors
contended that prosecutions could not be launched against all the directors of
or failure to comply with any provision of the Act but should be filed only
against the company and those directors who are in default as defined under
section 5 of the Act and since the complaint had mechanically stated that
"the company and its directors are under statutory obligation to file the
statutory returns and since they failed to file the returns, all of them are
liable", the complaints were not maintainable and prosecutions could not
be launched.
The learned
judge, following the dictum of the Kerala High Court, as stated supra,
expressed thus (at page 677) :
"From
this observation, conversely it follows, that if notice is served and if no
reply is received, it must be held that that officer has knowingly committed
default."
So saying, the
learned judge held that the complaint filed by the Assistant Registrar of
Companies against the company and all its directors treating them as
"officers in default" is maintainable.
From the
discussion as above, it goes without saying that the petitioner-accused No. 4
cannot at all be construed to the an "officer in default" under the
provisions of section 5 of the Act.
For the
reasons as above, the prosecutions as launched against the petitioner-accused
No. 4 deserve to be quashed.
In the result,
both the petitions are allowed and the proceedings in C.C. Nos. 1291 and 1292
of 1983, on the file of the Additional Chief Metropolitan Magistrate (E.O. No.
1), Egmore,
Career
Savings & Investment (
v.
Union of
B.J.
Shethna, J.
May 10,
2000
Section 58A of the Companies Act, 1956, read
with rule 3(1)(a) of the Companies (Acceptance of Deposits) Rules, 1975 -
Deposits - Repayment of - Petitioner-company’s representation seeking retention
of deposits beyond period of maturity and up to 8 years was rejected by
respondent on ground that it would amount to renewal of deposits in violation
of provision of section 58A - Whether since impugned order of rejection was
passed without hearing petitioner-company, principle of natural justice was
violated and, therefore, impugned notice had to be quashed - Held, yes
Facts
The petitioner-company represented to the
respondent to exempt it from the provisions of rule 3(1)(a) of the Companies
(Acceptance of Deposits) Rules, 1975 and to allow it to keep the deposits
beyond the period of maturity and up to 8 years with effect from 1-4-1998. The
said representation was rejected by the respondent on the ground that it would
amount to renewal of deposit in contravention of provisions of section 58A.
Aggrieved by the action of the respondent, the petitioner sought the
intervention of the High Court under article 226 of the Constitution.
Held
Having gone through the impugned order it was clear
that the representation of the petitioner-company was rejected by the
respondent No. 1 on the ground that it would amount to renewal of deposit in
contravention of provisions of section 58A of the Companies Act, 1956, read
with the Rules framed thereunder and, therefore, the Government did not find
enough justification for acceding to the request made by the company in its
letter. It was further stated in the impugned order that application under
section 58A(8) did not lie in respect of deposits which had matured, in view of
the subsequent provisions of section 58A(8)/(10).
Thus, it was clear that on aforesaid grounds
the representation of the petitioner was rejected. It might be an
administrative order but the grounds on which the respondent No 1 rejected the
representation of the petitioner-company left much to be desired. If an
opportunity was given to the petitioner-company to explain or satisfy that it
would not amount to renewal of deposits in contravention of the provisions of
section 58A and the application under section 58A(8) would lie, then it would
have satisfied the respondent No. 1 that it would not amount to renewal of
deposits in contravention of provision of section 58A read with Rules framed
thereunder and application under section 58A(8) did lie in respect of deposits
which had matured in view of specific provision of section 58A(8) and (10). It
was a different matter that after considering the objections raised by the
company the respondent No. 1 could have arrived at the conclusion which he had
arrived at by the impugned order. In that case, if such order was appealable
then this Court would not have interfered and relegated the petitioner to avail
the remedy of appeal.
In view of the above discussion on the ground
of violation of principles of natural justice in the sense that without hearing
the petitioner-company the impugned order was passed the petition was allowed
and the impugned order was hereby quashed.
M.C. Bhoot for the Petitioner. P.P. Chaudhary and S.S. Lal for the
Respondent.
Order
1. The
petitioner-company has challenged in this petition the impugned order dated
17-8-1995 (Ex. 5) passed by the respondent No. 1, whereby, the representation
of the petitioner-company for seeking exemption from provisions of rule 3(i)(a)
of the Companies (Acceptance of Deposits) Rules, 1975 for keeping deposits
beyond the period of maturity and up to 8 years with effect from 1-4-1998 has
been rejected.
2. On
several grounds raised in this petition the impugned order at Ex. 5 has been challenged
by the petitioner, but I am not required to go into all because in my opinion
on first ground, namely, regarding violation of principle of natural justice in
the sense that without hearing the petitioner-company the impugned order at
Ex. 5 is passed, this petition is required to be allowed.
3. However,
the learned counsel Shri P.P. Chaudhary for the respondents raised preliminary
objection about the maintainability of this writ petition on the ground that
when there is an alternative, statutory remedy of appeal available to the
petitioner against the impugned order at Ex. 5 the petitioner-company should
avail of that remedy of appeal before the company board. This was seriously
objected by the learned counsel for the petitioner by submitting that the
impugned order at Ex. 5 is not an appealable order and no appeal lies against
this order. Whether the appeal lies or not, I am not required to go into this
because I am of the considered opinion that before passing impugned order at
Ex. 5 the respondent No. 1 ought to have heard the petitioner and after hearing
the petitioner he could have passed the order.
4. It
may also be stated that in the ordinary circumstances this Court would have
upheld the preliminary objection regarding alternative
remedy of appeal, but having regard to the peculiar facts and circumstances I
do not see any reason to direct the petitioner to avail that remedy
particularly when the impugned order is passed in flagrant violation of
principle of natural justice.
5. Having gone
through the impugned order at Ex. 5 it is clear that the representation of the
petitioner-company was rejected by the respondent No. 1 on the ground that it
would amount to renewal of deposit in contravention of provisions of section 58
of the Companies Act, 1956 read with the Rules framed thereunder, therefore,
Government did not find enough justification for acceding to the request made
by the company in its letter which is referred to in the impugned order at Ex.
5. It is further stated in the impugned order that application under section
58A(8) of the Act does not lie in respect of deposits which have matured in
view of the subsequent provision of section 58A(8)/(10).
6. Thus,
it is clear that on aforesaid grounds the representation of the petitioner was
rejected. It may be an administrative order, but the grounds on which the
respondent No. 1 rejected the representation of the petitioner-company left us
much to desire. If, an opportunity was given to the petitioner-company to
explain or satisfy that it would not amount to renewal of deposits in
contravention of the provisions of section 58A and the application under
section 58A(8) lies then it would have satisfy the respondent No. 1 that it
would not amount to renewal of deposits in contravention of provision of
section 58A read with Rules framed thereunder and application under section
58A(8) does lie in respect of deposits which have matured in view of specific
provision of section 58A(8) and (10). It is a different matter that after
considering the objections raised by the company the respondent No. 1 could
have arrived at the conclusion which he has arrived at by the impugned order at
Ex. 5. In that case, if such order was appealable then this Court would not
have interfered and relegated the petitioner to avail the remedy of appeal.
7. In
view of the above discussion, this petition is allowed. The impugned order at
Ex. 5 is hereby quashed and set aside and the respondent No. 1 is directed to
consider and decide the representation of the petitioner-company in accordance
with law as early as possible preferably within three months from today after
extending an opportunity of hearing to the petitioner-company.
8. At
first instance, the petitioner company shall appear before the respondent No. 1
through its representative on 25-5-2000. On that day, the respondent No. 1
shall give a fix date of hearing to the petitioner-company and after hearing
the petition it shall decide the representation in accordance with law as
directed above.
Petition allowed.
[1990]
69 COMP. CAS. 339 (KER)
HIGH COURT OF KERALA
v.
Registrar of Companies
T.L. VISWANATHA IYER J.
AUGUST 3, 1990
M. Pathrose Mathai for the
Petitioner.
K.
Karthikeya Panicker for the Respondent.
JUDGMENT
T.L.
Viswanatha Iyer, J.—Section 58A of the Companies Act, 1956, was introduced by the
Companies (Amendment) Act, 1974, enabling the Central Government to prescribe
the limits up to which, the manner in which, and the conditions subject to
which, deposits may be invited or accepted by a company either from the public
or from its members. The prescriptions made mention of in section 58A are
contained in the Companies (Acceptance of Deposits) Rules, 1975 (hereinafter
referred to as "the Rules"), dated February 3, 1975. Rule 3
prescribes the conditions relating to acceptance of deposits by companies.
Sub-rule (1) provides, inter alia, that, on and from the commencement of the
Rules, the deposits accepted by a company shall not exceed 10% of the aggregate
of the paid-up share capital and free reserves of the company. The Explanation
to the rule states that, for the purpose of the rule, in arriving at the
aggregate of the paid-up share capital and free reserves of a company, there
shall be deducted from the aggregate of the paid-up share capital and free
reserves as appearing in the latest audited balance-sheet of the company, the
amount of accumulated balance of loss, balance of deferred revenue expenditure
and other intangible assets, if any, as disclosed in the said balance-sheet. In
other words, the Explanation provides the mode in which the aggregate of the
paid-up share capital and free reserves of a company is to be arrived at.
Rule
10 of the Rules requires every company to file with the Registrar of Companies
on or before the 30th day of June of every year a return in the form annexed to
the rules, furnishing the information required therein as on the 31st day of
March of that year duly certified by the auditor of the company. The form
appended contains a certificate to be attested by the manager of the company
certifying, inter alia, that the aggregate of the paid-up capital and free
reserves, etc., is arrived at on the lines indicated in the Explanation to rule
3.
The
controversy between the parties relates to the certificate to be so attested by
the manager. The Registrar of Companies takes the view that the aggregate of
the paid-up share capital and the free reserves referred to in the certificate
should be as appearing in the balance-sheet of the company for a year in
relation to which the audit has been completed before the 31st of March of the
year in which the return is filed while, according to the petitioner, it can be
as per the latest audited balance-sheet of the company available before the
30th of June, irrespective of whether the audit was completed before or after
March 31. The petitioner's contention, therefore, is that the return can be
with reference to the latest audited balance-sheet, irrespective of the date of
audit, provided it was completed by the time the return was filed on or before
June 30.
The
matter arises this way. The financial and accounting year of the
petitioner-company is the calendar year ending on December 31. The audit for
the year ending December 31, 1983, had been completed on May 19, 1984. The
accounts and the balance-sheet were also approved by the general body at its
meeting held on June 29, 1984. In submitting the return, exhibit P-3, under
rule 10, of the deposits as on March 31, 1984, the petitioner-company arrived
at the aggregate paid-up capital and free reserves with reference to the
balance-sheet as on December 31, 1983, as the accounts for the year ending that
date had been audited by May 19, 1984, and approved by the general body on June
29, 1984. The return under rule 10 as on March 31, 1984, was, accordingly,
filed with reference to the balance-sheet as on December 31, 1983.
|
|
Rs. |
|
Paid-up capital |
|
|
Free reserves (specify) |
|
|
|
––––––––––––––––– |
|
Total |
|
|
|
––––––––––––––––– |
|
Less : |
Rs. |
|
(i) Accumulated
balance of loss |
|
|
(ii) Balance of
deferred revenue expenditure |
|
|
(iii) Other
intangible assets (specify) |
|
|
Deposits of the kinds referred
to in the first proviso to sub-rule (1) of rule 3 (vide item I of Part A of
the return) |
|
|
(% of paid-up capital and free
reserves) |
|
|
Deposits of the kinds referred
to in sub-rule (2) of rule 3 (vide item II of Part A of the return) |
|
|
(% of paid-up capital and free
reserves) |
|
|
|
......................................................... |
|
|
Signature of
authorised official Name |
|
|
......................................................... |
|
|
Designation" |
In
doing so, the petitioner followed the same practice which they had adopted in
previous years for which their returns had been accepted. It is true that in
two prior years, in relation to the returns as on March 31, 1980, and March 31,
1981, the respondent had raised a dispute that the petitioner should have
adopted the figures as per the balance-sheets for the years ending December 31,
1978, and December 31, 1979, respectively, instead of those as on December 31
of the years 1979 and 1980. But this objection was not persisted in after the
petitioner explained its stand by the letter, exhibit P-2, dated July 15, 1982,
that the latest audited balance-sheets as on the date of filing of the return
were for the years ending December 31, 1979, and December 31, 1980,
respectively. The matter rested there, and no objection was raised subsequently
in relation to the returns as on March 31, 1982, and March 31, 1983, made,
following the same pattern. But the matter was raked up again when the
petitioner submitted its return in the same manner containing the information
as on March 31, 1984. A large volume of correspondence passed between the
parties, both sides sticking to their respective positions. The respondent was
firmly of the view, as evident from his letters, exhibits P-4, P-6, P-8 and
P-11, that the petitioner has to arrive at the aggregate of paid-up share
capital and free reserves with reference to the balance-sheet as on December
31, 1982, since that was the last audited balance-sheet as on March 31, 1984.
But the petitioner equally firmly stuck to its point that the return can
reflect the state of affairs as on December 31, 1983, inasmuch as that was the
latest audited balance-sheet as on the date on which the return was filed,
namely, June 30, 1984. This is the controversy to be resolved in these
proceedings.
The
respondent relies on the Explanation to rule 3 to contend that the aggregate
has to be arrived at with reference to the latest audited balance-sheet, which,
according to him, was the one as on December 31, 1982. As mentioned earlier,
the Explanation to rule 3 lays down the mode in which the aggregate is to be
arrived at for the purpose of that rule. The Explanation runs as under:
"For
the purpose of this rule, in arriving at the aggregate of the paid-up share
capital and free reserves of a company, there shall be deducted from the
aggregate of the paid-up share capital and free reserves as appearing in the
latest audited balance-sheet of the company, the amount of accumulated balance
of loss, balance of deferred revenue expenditure and other intangible assets,
if any, as disclosed in the said balance-sheet".
According
to the respondent, this has to be related to the manager's certificate in the
form of return as well. The manager's certificate is in the following terms:—
"Certified
that the figures of deposits, liquid assets and interest rates under Parts A, B
and C have been verified and fourd to have been correctly prepared. Certified
also that the aggregate of the paid-up capital and free reserves, etc., as
arrived at on the lines indicated in Explanation 2 to rule 3 of the Rules are
as follows :
On
the other hand, the petitioner's contention is that the Explanation is
applicable only for the purpose of rule 3. What rule 10 and the form appended
thereto require is only the aggregate to be arrived at on the lines indicated
in the Explanation. In other words, what is to be done is to deduct the various
items mentioned in the Explanation from the paid-up capital and free reserves
in the latest audited balance-sheet which can be the one as on the date of
filing of the return.
The
petitioner points out, in this connection that when once the accounts are
audited, and they are approved by the general body, as in this case, the
balance-sheet relates back to the last date of the year to which it pertains.
Reliance is placed on the decisions in CIT v. Mysore Electrical Industries
Ltd., [1971] 80 ITR 566 (SC) of the Supreme Court, CIT v. Aryodaya Ginning and
Manufacturing Co. Ltd. [1957] 31 ITR 145 of the Bombay High Court and Southern
Roadways Ltd. v. CIT [1981] 51 Comp Cas 513, of a Full Bench of the Madras High
Court.
After
hearing counsel on both sides, I am of the view that, having regard to the
purpose and the scheme of section 58A and of the rules, the petitioner's
contention has to be accepted. Section 58A empowered the Central Government to
prescribe the limits up to which, the manner in which and the conditions
subject to which, deposits may be invited or accepted by a company either from
the public or from its members. The provision is intended to achieve a definite
public purpose, namely, to check indiscriminate/fraudulent receipt or
acceptance of deposits by a company, resulting in hardship to the investing
public where the companies fail or are unable to repay the deposits. While
conferring this power, Parliament left it to the Central Government to lay down
the prescriptions necessary for effective implementation of the check, as
warranted by the circumstances prevailing from time to time. It is in this
background that rule 3, limiting the deposits to be accepted by a company to 10
% of the aggregate of its paid-up share capital and free reserves, computed in
the manner provided in the Explanation, was framed. The very purpose of the
rules prescribing limits on deposits and enjoining disclosure of the company's
affairs by means of returns filed every year is to ensure proper control and
check on such activities of companies and to shield the investors from possible
frauds. Reckless and excessive acceptance of deposits is controlled by the
ceiling prescribed in rule 3, and relating it to the paid-up share capital and
free reserves. Since the audited balance-sheet authentically reflects the true
state of affairs of the company, that is made the basis for the information to
be contained in the return. The figures appearing in the latest audited
balance-sheet are, therefore, made relevant in the computation of the ceiling
on deposits.
There
is no prescription in the Explanation that the "latest" audited
balance-sheet is not really the latest available in point of time, but only the
latest as on March 31. It is not possible to read such a limitation into the
Explanation when the very object of section 58A will be better subserved by
relating the information to the latest of the audited balance-sheets available
as on the date of filing of the return, before the last date prescribed for it,
namely, June 30. The function of the return is to alert the company law
administration about any infringement of the rule on ceiling on deposits. The
provisions in section 58A and the rules are made in public interest and for the
protection of the investing public. The ceiling should, therefore, be reckoned
as far as possible, with reference to the latest available authentic figures.
The availability of such figures as on a date nearest to the 31st of March,
with reference to which the return is filed, will facilitate effective
implementation of the statutory provisions and the supervision and control
envisaged thereby. In other words, the availability of an audited balance-sheet
with reference to a date nearest to the 31st of March concerned will better
achieve the object of section 58A and the Rules.
An
ideal state of affairs will be where the latest audited balance-sheet available
is as on the 31st day of March of the year to which the return itself relates.
Since that is not practicable, the rules have relegated the position to the
last of the audited balance-sheets available.
I
must state here that it is advisable to adopt a construction of a statute that
will promote the general legislative purpose underlying the provision. A
purposive approach which will advance the cause and the object of the
legislation is called for. The interpretation canvassed by the respondent will,
according to me, detract from the utility of section 58A as an effective check
on the acceptance of deposits by companies.
In
the circumstances, I do not find any justification for the respondent's
contention that the latest audited balance-sheet should be the one audited
before 31st March, and not before the date on which the return is filed before
30th June. The requirement is the latest correct figure in relation to the
company and not some figure in relation to a past date which may have considerably
changed between that date, and the 31st of March to which the return relates.
If, therefore, a latest audited balance-sheet is available, the figures therein
ought to be preferred, even though the audit itself might have been completed
after the 31st of March of the year to which the return pertains. That alone
will disclose the true state of the company's affairs, and as to whether it has
violated the limits prescribed by rule 3 read with section 58A.
In
this view of the matter, it is unnecessary for me to consider the decisions
cited by counsel for the petitioner which relate to computation of capital for
the purpose of the Business Profits Tax Act or the Companies (Profits) Surtax
Act. What has to be seen in the adjudication of such a question is whether the
legislative intent is subserved by the interpretation placed upon it. According
to me, that intent will be well served by the construction which I have placed
above on the relevant provisions.
I
must also mention that the petitioner had been following the same practice in
the past years. The respondent himself accepted those returns. Even though an
explanation is given in the counter affidavit for such acceptance, I do not
think that the petitioner-company was at fault in following the same procedure
for the return as on March 31, 1984, as well. It is not as if the petitioner is
concealing anything by making the return in the manner done as on March 31,
1984. In fact, the figures under the earlier balance-sheets are all available
with the respondent so that the petitioner does not really stand to gain
anything by adopting the same procedure which they had adopted in the previous
years. The respondent has, therefore, gone wrong in insisting that the
petitioner should adopt the figures as per the balance-sheet for the year
ending March 31, 1982, for the return as on March 31, 1984.
I,
therefore, quash exhibits P-4, P-6, P-8 and P-11 and direct the respondent to
deal with the return, exhibit P-3, which the petitioner has furnished, as one
made in compliance with rule 10 of the Rules.
The
original petition is allowed as above.
No
costs.
[1983] 54 COMP. CAS. 674 (SC)
SUPREME COURT OF
v.
(S.L.P.
(Civil) No. 4454 of 1982)
D.A.
DESAI, V. BALAKRISHNA ERADI AND R.B. MISRA JJ.
WRIT PETITIONS NOS. 1637, 1733, 1933-35, 1952, 1961-62,
1963-64, 2002-03,2007, 2021, 2085, 2109-12, 2114, 2189, 2837, 3131, 3354, 3643,
4233, 4681, 5723, 7447 AND 7624 OF 1981 AND 2628, 2835, 3471, 4310,4382, 4385,
8513, 2404, 2748,5507,5508, 2499, 2748 AND 9341 OF 1982 AND CIVIL APPEALS NOS.
747-68, 850-52, 769-73, 854, 941, 1091, 1417, 1535 AND 3013 OF 1981 AND SPECIAL
LEAVE PETITION (CIVIL) NO. 4454 OF 1982.
JULY
21, 1983
G.C.
Gandhi, Ashok Grover and Anil Sharma for the Appellant.
L.N.
Sinha, Ms. A. Subhashini and P.P. Singh for the Respondent.
Desai J.—In this group of writ petitions under art. 32 and appeals
by special leave under art. 136 of the Constitution, constitutional validity of
r. 3A of the Companies (Acceptance of Deposits) Rules, 1975 ("Deposits
Rules" for short), introduced by the Companies (Acceptance of Deposits)
Amendment Rules, 1978, which became operative from April 1, 1978, and
incidentally of s. 58 A of the Companies Act, 1956 ("Act" for short),
inserted by the Companies (Amendment) Act, 1974, which came into force on
February 1, 1975, is challenged. The challenge proceeds on diverse grounds
which may be briefly summarised.
At the very outset, it must
be noticed that the factual matrix has little or practically no relevance in
this case.
The contention put in the
forefront was that in the absence of guidelines both s. 58A and r. 3A of the
Deposits Rules enacted in exercise of the power conferred by s. 58A confer
arbitrary and uncanalised powers and hence are violative of art. 14.
Contravention of art. 14 was canvassed for the additional reason that the power
to exempt from the application of the rule confers wide discretion so that it
can be used arbitrarily to pick and choose with the result that equality before
law is denied. Further, the obligation to deposit 10% of the deposits maturing
during the year ending 31st March next following has no rational nexus to the
object sought to be achieved by the provisions and is either in excess of the
requirement or irrelevant and in any case arbitrary. The next in order of
priority came the challenge that having regard to the numerous inbuilt
safeguards provided in s. 58A, the imposition of a liability to deposit 10% of
the total deposits maturing in a year in the manner as required by the impugned
rule, if it was enacted for the protection of the depositors, the protection is
illusory and does not subserve the purpose for which it is enacted and,
therefore, the requirement is wholly unreasonable and imposes an unreasonable
restriction on the freedom, to carry on business, conferred by art. 19(1)(g).
As a corrolary, it was submitted that if r. 3A is enacted not for the limited
purpose of protecting depositors, but has a wider aim particularly with regard
to the regulation of credit system of the country, control of circulation of
money in India's economy and imposing financial discipline, it is clearly ultra
vires s. 58A. As a second string to the bow, it was contended that if s. 58A enacts
a legislative policy, a rule framed to carry out the policy must be relevant to
the implementation of the policy so laid down, but the provision contained in
r. 3A is neither relevant nor capable of being regarded as relevant for
implementation of the policy and, therefore, it is ultra vires s. 58A.
Mr. S.T. Desai, who
appeared in some matters, further contended that if s. 58A is widely construed
to encompass the mode or manner of utilisation of the funds of the company
which will include the deposits made with the company, obviously s. 58A itself
will be rendered unconstitutional as transgressing the permissible limits of
delegated legislation and it would appear that the Legislature was guilty of
abdication of its essential legislative functions. It was said that r. 3A
cannot be saved as a regulatory measure because the regulatory measure must
subserve some purpose which r. 3A fails to acheive, namely, protection of
depositors and in examining the matter, the court should eschew a dogmatic or
doctrinaire approach.
Mr. O.P. Malhotra, learned
counsel appearing in some matters, raised an additional contention that
Parliament did not have legislative competence to enact s. 58A and ipso facto r.
3A, because the legislation is referable to entry 30 in the State List :
Money-lending and money-lenders ; relief to agricultural indebtedness and not
to entries 43 and 44 of the Union List.
Mr. G.A. Shah, appearing in
some matters, raised an additional contention that to the extent limited
retrospectivity is given to r. 3A, it is ultra vires s. 58A and the
Constitution.
Mr. A. Subba Rao, learned
counsel appearing in some other matters, canvassed one more contention when he
urged that the obligation to deposit 10% of the amount of deposits maturing in
the year constitutes temporary deprivation of property without any
countervailing obligation or benefit and, therefore, it is ultra vires the
Constitution.
The learned
Attorney-General appearing for the Union of India raised a preliminary
objection that the writ petitions under art. 32 or those filed in the High
Court under art. 226 were not maintainable because the incorporated company
being not a citizen, freedom guaranteed by art. 19(1)(g) is not secured to it,
and the situation would not be improved by merely impleading a director or a
shareholder as one of the petitioners because a company has a juristic
personality independent of the shareholders and the directors and the trade or
business carried on by the company cannot be said to be trade or business
carried on by the directors or shareholders. And to keep art. 14 put of the way, it was urged
that it is merely a facade to invoke the jurisdiction of this court. It was
next urged that s. 58A enacts a legislative policy, and wisdom or necessity of
the policy is in the domain of the Legislature and the court never under takes
to examine the wisdom or otherwise of the legislative policy. Proceeding along
this line, it was said that if r. 3A is enacted for the implementation
of the legislative policy, the court is precluded from examining the wisdom or
otherwise of the policy, because the Legislature is the best judge in this
behalf. It was urged that the charge of excessive delegation is unsustainable
because the legislative policy underlying the provision was devised after
consulting and obtaining guidance of an expert body like the Reserve Bank of
India and the relevant rules were placed before Parliament which had complete
control over the rules and exemption or exclusionary clause can be properly
implemented because of the guidance available from the scheme of the Act as
also the purpose and object underlying the impugned provision. An alternative
submission was that the court need not undertake the examination of the
validity of the exemption provision because it is severable and its invalidity
will not affect the rest of the scheme if it was otherwise valid. In answer to
the contention whether the impugned rule has nexus to the objects sought to be
achieved and the effectiveness of the rule, it was submitted that, firstly, s.
58A must receive such interpretation as would suppress the mischief and advance
the remedy. It was pointed out that the mischief which was sought to be
remedied is clearly discernible from the Statement of Objects and Reasons as
also the Notes on Clauses published, while introducing the 1974 Amendment Act.
It was next urged that if the rule imposes a restriction on the fundamental
freedom to carry on trade or business, the same is reasonable because it is of
a regulatory nature enacted with a view to protecting depositors coming from a
socially and economically weaker section who may be tempted by the alluring
promises made in an advertisement inviting deposits with no umbrella of protection
when the company folds up its tent, becomes sick and in winding-up, the
depositor has to stand in a queue as an unsecured creditor. It was lastly
submitted that even if it can be said that there was limited retrospectivity,
the same is permissible because the mere fact that a part of the requisite for
the application of the rule is. derived from an anterior date by itself will
not make it retrospective.
Before
we examine the various contentions summarised here, a brief review of the
relevant provisions of the Act and the Deposits Rules would be advantageous.
The Companies Act, 1956, was enacted to consolidate and amend the law relating
to companies and certain other associations. Section 58A was introduced by the
Companies (Amendment) Act, 1974. The relevant portion of s. 58A is extracted
hereunder :
"58A. Deposits
not to be invited without issuing an advertisement :........... (2) No company
shall invite, or allow any other person to invite or cause to be invited on its
behalf any deposit unless—
(a) such deposit is invited or is caused to be
invited in accordance with the rules made under sub-section (1) and
(b) an advertisement, including therein a
statement showing the financial position of the company, has been issued by the
company in such form and in such manner as may be prescribed.
(3)(a) Every deposit accepted by a company at any
time before the commencement of the Companies (Amendment) Act, 1974, in
accordance with the directions made by the Reserve Bank of India under Chapter
III-B of the Reserve Bank of India Act, 1934 (2 of 1934), shall, unless renewed
in accordance with clause (b), be repaid in accordance with the terms of such
deposit.
(b) No deposit referred to in clause (a) shall
be renewed by the company after the expiry of the term thereof unless the
deposit is such that it could have been accepted if the rules made under
sub-section (1) were in force at the time when the deposit was initially
accepted by the company.
(c) Where, before the commencement of the
Companies (Amendment) Act, 1974, any deposit was received by a company in
contravention of any direction made under Chapter III-B of the Reserve Bank of
India Act, 1934 (2 of 1934), repayment of such deposit shall be made in full on
or before the 1st day of April, 1975, and such repayment shall be with out
prejudice to any action that may be taken under the Reserve Bank of India Act,
1934, for the acceptance of such deposit in contravention of such direction.
(4) Where any deposit is accepted by a
company after the commencement of the Companies (Amendment) Act, 1974, in
contravention of the rules made under sub-section (1), repayment of such
deposit shall be made by the company within thirty days from the date of
acceptance of such deposit or within such further time, not exceeding thirty
days as the Central Government may, on sufficient cause being shown by the
company, allow.......
(7) (a) Nothing contained
in this section shall apply to,—
(i) a
banking company, or
(ii) such other company as the Central Government
may, after consultation with the Reserve Bank of India, specify in this behalf.
(b) Except the provisions relating to advertisement contained in
clause (b) of sub-section (2), nothing in this section shall apply to such
classes of financial companies as the Central Government may, after
consultation with the Reserve Bank of India, specify in this behalf."
In exercise of powser
conferred by s. 58A readwith s. 642 of the Act, the Central Government enacted
and promulgated the Companies (Acceptance of Deposits) Rules, 1975. Rule 2B
defines "deposit" to mean any deposit of money with, and included any
amount borrowed by, a company but does not include what is set out in sub-cls.
(i) to (x). Rule 3 prescribes conditions subject to which the deposits may be
accepted. Deposits against unsecured debentures or deposits from shareholders
of a public company or deposits guaranteed by any person, who at the time of
giving the guarantee, is a director of the company, together with short-term
deposits, if any, accepted shall not exceed 10% of the paid-up capital and free
reserves of the company. Any deposit other than those mentioned hereinbefore
shall not exceed 25% of the paid-up capital and free reserves of the company.
No deposit for a term less than six months and exceeding thirty-six months can
be accepted save what is called short-term deposit as set out in the proviso to
r. 3(1)(b). A ceiling on the rate of interest was imposed at 15% per annum (see
r. 3). Then comes r. 3A, which is the centre of this fierce controversy. It may
be reproduced in extenso :
"3A. Maintenance
of liquid assets: (1) Every company shall, before
the 30th day of April of each year deposit or invest, as the case may be, a sum
which shall not be less than ten per cent. of the amount of its deposits
maturing during the year, ending on the 31st day of March next following, in
any one or more of the following methods, namely :
(a) in a current or
other deposit account with any scheduled bank, free from charge or lien ;
(b) in unencumbered
securities of the Central Government or of any State Government ;
(c) in unencumbered
securities mentioned in clauses (a) to (d) and (ee) of section 20 of the Indian
Trusts Act, 1882 (2 of 1882) :
Provided
that with relation to the deposits maturing during the year ending on the 31st
day of March, 1979, the sum required to be deposited or invested under this
sub-rule shall be deposited or invested before the 30th day of September, 1978.
Explanation.—For the purposes of this sub-rule,
the securities referred to in clause (b) or clause (c) shall not be reckoned at
their market value.
(2) The amount deposited or invested, as the case may be, under sub-rule
(1), shall not be utilised for any purpose other than for the repayment of
deposits maturing during the year referred to in that sub-rule, provided that
the amount remaining deposited or invested, as the case may be, shall not at
any time fall below ten per cent. of the amount of deposits maturing until the
31st day of March, of that year."
Rule 4 prescribes the form
and particulars of advertisement which must be issued for inviting deposits.
Rule 5 prescribes the form of application to be made for deposits and r. 6
makes it obligatory to furnish a receipt for the deposit. Rule 7 obligates the
company to maintain register of deposits. Rule 10 requires the company to file
a return of deposits with the Registrar. These are the conditions prescribed by
rules subject to which deposits can be invited and accepted. The challenge is
confined to r. 3A only which obligates the company to deposit 10% of the
deposits maturing during the prescribed year in the manner set out in cls. (a),
(b) and (c)of sub-r. (1) of r. 3A.
The learned Attorney-General
raised a preliminary objection to the maintainability of the writ petitions
filed in this court under art. 32 and those filed in the High Court under art.
226 of the Constitution. The submission was founded on the ground that an
incorporated company being not a citizen for the purposes of art. 19 and,
therefore, it cannot complain of the denial or deprivation of fundamental
freedom guaranteed by art. 19(1)(g) of the Constitution and the situation is
not improved by joining either a shareholder or a director as co-petitioner. It
was said that the company has a juristic personality independent of the
director or a shareholder and the business or trade carried on by the company
is not that of either the shareholder or the director. As the corollary, it was
urged that even if the impugned rule 3A imposes an unreasonable restriction on
the fundamental freedom to carry on trade or business, this court cannot
entertain a petition under art. 32 nor the High Court can entertain one under
art. 226 of the Constitution. Frankly speaking, this is an oft repeated
contention whenever the petitioner is an incorporated company but the law in
this behalf is in a nebulous state and, therefore, it is not possible to throw
out the petition at the threshold. More so because a petition under art. 226 of
the Constitution can be filed by the company for any other purpose and also the
petitioners complain of violation of art. 14 of the Constitution. The reasons
for stating that the law is in a nebulous state may briefly be mentioned. In
Stale Trading
Corporation of India Ltd. v. Commercial Tax Officer, Visakhapatnam [1963] 33
Comp Cas 1057 (SC) and Tata Engineering & Locomotive Co. Ltd. v. State of
Bihar [1964] 34 Comp Cas 458 (SC), this court held that a corporation was not a
citizen within the comprehension of art 19 and,
therefore, could not complain of denial of fundamental freedom guaranteed by
art. 19 to a citizen of this country. These two decisions are an authority for
the proposition that an incorporated company being not a citizen could not
complain of violation of fundamental freedoms guaranteed to citizens under art.
19. But a different note was struck in Rustom Cavasjee Cooper v. Union of India [1970] 40 Comp
Cas 325 (SC), when it was held that 'a measure
executive or legislative may impair the rights of the company alone, and not of
its shareholders ; it may impair the rights of the shareholders as well as of
the company'. It was further held that jurisdiction of the court to grant
relief cannot be denied, when by State action the rights of the individual
shareholder are, impaired, if that action impairs the rights of the company as
well. In that case, the court entertained the petition under art. 32 of the
Constitution at the instance of a director and shareholder of a company and
granted relief. The two conflicting trends in this behalf were noticed by this
court in Bennett
Coleman & Co. Ltd. v. Union of India [1973] 2 SCR 757 ; AIR 1973 SC 106, where after a review of the aforementioned
decisions and several others, it was held as under (at p. 773 of [1973] 2 SCR
and at p. 115 of AIR 1973) :
"As a result of the Bank Nationalisation
case [1970] 40 Comp Cas 325 (SC), it follows that the court finds out whether
the legislative measure directly touches the company of which the petitioner is
a shareholder. A shareholder is entitled to protection of art. 19. That
individual right is not lost by reason of the fact that he is a shareholder of
the. Company. The Bank Nationalisation case [1970] 40 Comp Cas 325 (SC), has
established the view that the fundamental rights of shareholders as citizens
are not lost when they associate to form a company. When their fundamental
rights as shareholders are impaired by State action their rights as
shareholders are protected. The reason is that the shareholders' rights are
equally and necessarily affected if the rights of the company are affected. The
rights of shareholders with regard to article 19(1)(a)are projected and
manifested by the newspapers owned and controlled by the shareholders through the
medium of the corporation."
Our attention was, however,
invited to two later decisions : (1) Divisional Forest Officer v. Bishwanath Tea Co. Ltd. AIR 1981
SC 1368, and (2) Western Coalfields Ltd. v. Special Area Development Authority,
Korba, AIR 1982 SC 697. But we can draw no
assistance from the aforementioned two cases because in the first case the
question this court considered was whether a petition merely for refund of a
tax paid under a mistaken impression at the instance of a company can be
entertained under art. 226 and the question in the second case was whether the
properties of a Govt. company are exempt from levy of tax imposed by the State
or its delegate under art. 285(1). The contention raised in these two cases
does not touch the question under examination. Thus apart from the law being in
a nebulous state, the trend is in the direction of holding that in the matter
of fundamental freedoms guaranteed by art. 19, the rights of a shareholder and
the company which the shareholders have formed are rather co-extensive and the
denial to one of the fundamental freedom would be denial to the other. It is
time to put an end to this controversy but in the present state of law we are
of the opinion that the petitions should not be thrown out at the threshold. We
reach this conclusion for the additional reasons that apart from the complaint
of denial of fundamental right to carry on trade or business, numerous other
contentions have been raised which the High Court had to examine in a petition
under art. 226. And there is a grievance of denial of equality before law as
guaranteed by art. 14. We accordingly overrule the preliminary objection and
proceed to examine the contentions on merits.
Let the camouflage of
alleged violation of fundamental right in these petitions not deceive any one ;
let no one be in doubt that the petitions are tiled to vindicate some
fundamental rights, encroachment on which is resented. At the root lies the
fierce and unending battle royal between political power and economic power to
gain ascendance one over the other. Piercing the veil of legalese the
core-question is the degree of social control imposed by the State and resisted
at every turn by the corporate sector in the internal administration of
corporate sector. There fore, a bird's eye-view of the development of company
law which represents the State intervention in management of companies would be
advantageous.
Any scientific attempt at
presenting the history of company law in our country inevitably telescopes into
the history of company law in U.K. because more or less the framers of the
company law in India followed in the shadow of the development of the law in
U.K. Corporate sector wields tremendous economic power and this organised
sector has throughout challenged by all the means at its command, social
control by political institutions and more particularly the State. The law
developed in the footsteps of abuse by the corporate sector of its economic
power and dominating influence in the world of national and international
industry, trade and commerce. If uncontrolled, the result is disastrous and the
infamous South-Sea Bubble should be an eye-opener. The first and second decades
of the 18th century were marked by an almost frenetic boom in company floatations.
When the flood of speculative enterprises was at its height, Parliament in U.K.
decided to intervene to check the gambling mania when it drew attention to the
numerous undertakings which were purporting to act as corporate bodies without
legal authority, practices which manifestly tend to the prejudice of the public
trade and commerce of the kingdom (See Modern Company Law by Gower, 4th Edn.,
pages 28-29). That which governs the least, governs the best, the laissez faire
doctrine was firmly entrenched. Since then at regular intervals, the State
control became more or less discernible in successive Company Acts.
The State intervention into
the functioning of the corporate sector initially took the form of the
prosecution for breach of some of the laws, the first notable case being the
one in November, 1807. The Attorney General at the instance of a private
relator sought criminal information against two unincorporated companies both
of which had freely transferable shares and advertised that the liability of
the members would be limited. Lord Ellenborough in R v. Dad [1808] 9 East 565,
dismissed the application because of the lapse of 87 years, since the Act was
previously invoked but he issued a stern warning that no one in the future
could pretend that the statute was obsolete and indicated that "a
speculative project founded on joint stock or transferable shares" was
prohibited.
Returning to the native
soil, the first legislative measure to regulate the companies in India was the
enactment of the Joint Stock Companies Act of 1850. It was amended in 1857, a
notable feature of the amendment being the extension of limited liability
benefit to insurance and banking companies. The Amending Acts, one in 1866 and
the other in 1913 followed. The Indian Companies Act of 1913 was a fairly
comprehensive measure taking into its stride the amendments in U.K. Companies
Act till then made. This Act was extensively amended in 1936 and again at
regular intervals thereafter. The Govt. of India appointed a Committee in 1950 under
the chairmanship of Shri Bhabha to consider amongst other things the extent to
which it was possible to adjust the structure and methods of the corporate form
of business management with a view to weaving an integrated pattern of
relationships as between promoters, investors and the management, principal
among them being the legitimate rights of investors and the interest of
creditor, labour and other partners in production and distribution may be duly
safeguarded and the attainment of the ultimate end of social policy towards
which the corporate sector must work. A comprehensive statute being the
Companies Act of 1956 was enacted pursuant to the recommendations of the Bhabha
Committee. The two notable features of the 1956 Act, from the point of view of the
present discussion, are compulsory maintenance and audit of company accounts,
and power of inspection and investigation by the Central Govt. When the Act of
1956 functioned for a period of about a year and some difficulties surfaced in
its actual implementation, the Govt. of India appointed a committee under the
chairmanship of Justice A.V. Viswanatha Sastri, retired judge of the Madras
High Court in May, 1957, to examine the working of the Companies Act, 1956. The
terms of reference of the committee were quite wide. This committee submitted
its report in 1957, which led to the Companies (Amendment) Act, 1960. This
amendment was specifically directed to the safeguarding of the private
investment in the corporate sector. The Govt. of India acquired extensive
powers for the regulation of the financial management of the private sector
companies, under the 1960 Amendment Act. In the meantime, the Govt. of India
having received numerous complaints of fraud, embezzlement of funds and gross
irregularities in the companies controlled and managed by Dalmia-Jain combine,
appointed a commission of enquiry first presided over by Justice S.R. Tendolkar
and subsequently by Shri Vivian Bose, a retired judge of the Supreme Court of
India. This Commission submitted its report in the fall of 1962. Vivian Bose
Enquiry Commission Report unearths the intrigue, abuse of trust, jugglery of
company funds, misuse and abuse of positions of power in the management of the
affairs of Dalmia-Jain Group of Companies as also criminal breach of trust in
respect of the funds of the company reposed in the promoters and controllers of
the private companies and how they utilised the corporate finances for their
personal advancement. This report, led to the enactment of the Companies
(Amendment Act, 1965, which vastly increased the governmental control of the
private sector companies. The Companies (Amendment) Act, 1974, which, inter
alia, introduced s. 58A simultaneously ushered in vast changes in the 1956 Act
making greater inroads by the Central Govt. in the management of companies
governed by the 1956 Act. A step by step study of the various amendments would
unmistakably reveal the greater and greater-intervention and control by State
and this control was in direct proportion to the abuse of the economic power
wielded by the corporate sector.
The Companies Act of 1956,
to some extent, also attempts to translate into action arts. 38 and 39 in Part
IV of the Constitution, by which the State was directed that the ownership and
control of the material resources of the community are so distributed as best
to subserve the common good and the operation of the economic system does not
result in concentration of wealth and means of production to the common
detriment. Further, art. 46 mandates the State to promote economic interests of
weaker sections of the people from all forms of exploitation. A fortiori every
provision of the Companies Act must receive such interpretation as to suppress
the mischief to remedy which it was enacted and advance the object as also to
achieve and translate into action the underlying intendment of the enactment
for the realisation of the constitutional goals as set out in Part IV of the
Constitution.
As a high priority promise
of independence, laws directed to agrarian reforms rolled out from States
legislatures in quick succession. Urban elite found it disadvantageous to
invest their savings in agricultural land. It is said that the Rent Restriction
Acts were a disincentive for investment in urban house property. Gold control
measures dried up gold as a venue of investment of savings. Bank interests were
discouraging. Social security in old age being niggardly or non-existent there
was fascinating attraction for deposits in non-banking companies. There was
such tremendous rush in this direction that even banks stood aghast at this
phenomenon. This point can be buttressed by a mere reference to the fact that
in the year 1973-74 deposits of non-banking companies rose from 747.8 crores to
Rs. 1,028 crores, and by 1978 it rose to 1,313 crores (Project Report on Government Regulation
of Financial Management of the Private Sector
Companies in India by V.D. Kulshrestha.) And failure to meet obligation by
companies the consequent misery of middle and lower middle classes as
tragically illustrated by Sanchaita syndrome attracted the attention of
Parliament. This additional aspect has to be kept in view while examining the
contentions canvassed in these petitions and appeals.
Before we turn to s. 58A
and the rules framed thereunder, a reference to the earlier attempts to
exercise some degree of control over non-banking companies attracting and
inviting deposits from public would be advantageous. Chapter III-B was
introduced in the Reserve Bank of India Act, 1934, by Act No. 55 of 1963, which
came into force on February 1, 1964. Fasciculus of sections in Chap. III-B
bears the title "Provisions relating to non-banking institutions receiving
deposits and financial institutions". Section 45(1) denned
"company" to mean a company as defined in s. 3 of the Companies Act
and includes a foreign company within the meaning of s. 591 of that Act.
Deposit was defined to include any money received by a non-banking institution
by way of deposit, etc. There was an exclusionary cause in pari materia with the
exclusionary clause in s. 2(b) of the Deposits Rules of 1975. Section 45J
conferred power on the Reserve Bank to regulate or prohibit the issue by any
non-banking institution of any prospectus or advertisement soliciting deposits
of money from the public and to specify the conditions subject to which any
such prospectus or advertisement if not prohibited may be issued. Section 45K
conferred power on the Reserve Bank to collect information from non-banking
institution as to deposits and also to give directions in this behalf. There
were other provisions incidental to these substantive provisions. In exercise
of this power, the Reserve Bank issued various directions up to and inclusive
of 1977 which included ceiling of maximum deposits that can be accepted, the
minimum and maximum period for which the same can be accepted and other
incidental provisions. These legal provisions are the prelude to the provisions
impugned in these petitions and they would unravel the intendment, object,
purpose, the mischief prevalent and attempt at remedying the same by s. 58A and
the Deposits Rules of 1975.
Section 58A conferred power
on the Central Govt. to be exercised in consultation with the Reserve Bank of
India to prescribe the limits up to which, the manner in which and the
conditions subject to which deposits may be invited or accepted by a company
either from public or from its members. The challenge is directed to r. 3A
which obligates the company inviting deposits to deposit or invest, as the case
may be, before the 30th day of April, of each year, a sum which shall not be
less than ten per cent. of the amount of its deposits maturing during the year
ending on the 31st day of March next following according to any one or more of
the methods set out in the rule. Sub-rule (2) imposes a fetter on the power of
the company to use the amount so deposited and invested for any purpose other
than for the repayment of deposits maturing during the year referred to in
sub-r. (1). And this is: subject to a further condition that deposit shall not
at any time fall below ten per cent. of the amount of deposits maturing until
the 31st day of March next following. The deposit herein contemplated is to be
made with any scheduled bank free from charge or lien or in unencumbered
securities of the Central Govt. or of any State Govt. or in unencumbered
securities mentioned in cls. (a) to (d) and (ee) of s. 20 of the Indian Trusts
Act, 1882.
The first contention is
that having regard to the numerous in-built safeguards provided in s. 58A and
the rules made thereunder, the imposition of 10% deposit under r. 3A is
unreasonable and arbitrary particularly because the provision does not
effectively protect the depositors if that was the underlying intendment. Even
prior to the introduction of sec. 58A, the RBI was empowered to regulate the
acceptance and repayment of deposits by the non-banking companies. The
Legislature having become aware that the regulatory measures introduced by the
RBI have not effectively protected the depositors, felt that the needs of the
time necessitated introduction of statutory provisions enabling the Central
Govt. to take effective measures for the protection of the depositors. This
becomes manifest from the Statement of Objects and Reasons wherein it was
stated that: "experience has shown that in many cases deposits so taken by
the companies have not been refunded on the due dates. In many such cases,
either the companies have gone into liquidation or the funds with the companies
are depleted to such an extent that the companies are not in a position to
refund the deposits. It is accordingly considered necessary to control
companies inviting deposits from the public". The Legislature conferred
wide power on the Central Govt. to introduce regulatory and remedial measures
by which the depositors can be given some protection. To say that the
protection is neither adequate nor sufficient and, therefore, of doubtful
utility and, accordingly, must be rejected as arbitrary is to put a premium on
these practices which necessitated a further measure of social control, taking
more effective steps to checkmate the abuse of this powerful corporate sector
and to leave the mischief unrepaired. Any interpretation of s. 58A has to be
such as to achieve the purpose of imposing a measure of social control to
remedy the mischief, to suppress which the provision was enacted. To revert to
the language of s. 58A, the Central Govt. was authorised to prescribe the
limits subject to which, the manner in which and the conditions subject to
which the deposits may be invited or accepted by the company. The Deposits
Rules viewed as a whole amongst others prescribe the limits up to which a
company can invite and accept deposits (r. 3(1) & (2)). The obligation to
issue an advertisement on par with the prospectus (r. 4), obligation to furnish
receipt to the depositors (r. 7), all necessarily prescribe the manner in which
deposits may be invited or accepted. Rule 3A makes it obligatory to keep 10% of
the deposits maturing in a year, and it thus provides one of the conditions
subject to which deposits can be invited or accepted. And indisputably, s. 58A
confers power on the Central Govt. to prescribe all the three things by rules
made in this behalf.
It was, however, urged that
this r. 3A is arbitrary for more than one reason: (1) that it deprives the
company the use of 10% of its funds even though the company is obliged to pay
interest to the depositors as contracted between the parties, and (2) if the
rule was intended to afford some safeguard in the interest of the depositors or
protect them, the protection is illusory because in winding-up proceedings, the
depositors will have to stand pari passu with other unsecured creditors while a
secured creditor and a preferential creditor will score a march over them even
in regard to the 10% deposit because that would be treated as an asset of the
company available for distribution amongst various persons entitled to recover
claims from the company.
Undoubtedly, depositors with
a company, unless otherwise indicated, would be unsecured creditors. Secured
creditors and preferential creditors in the event of winding-up of the company
would score a march over them in distribution of the assets of the company. But
every measure cannot be viewed or interpreted in the event of a catastrophy
overtaking the company. The provision for deposit of 10% of deposits ensures
repayment of deposits maturing in the year and in order to enable the company
to meet its obligation, a provision is made in sub-r. (2) of r. 3A itself that
the amount deposited or invested, as the case may be, under sub-r. (1), shall
not be utilised for any purpose other than for the repayment of deposits
maturing during the year referred to in sub-r. (1). This necessarily implies
that this 10% deposit can be utilised for refunding the deposits maturing in a
year and that itself is an obligation of the company and in order provide the
company with liquid finance to meet its obligation, the provision of compulsory
deposit is introduced. The same cannot be questioned on the ground that it
constitutes deprivation of property of a company or is of a confiscatory
nature. The amount deposited to meet with the obligation of r. 3A is and
remains the property of the company, nor anyone else has any access to it. One
has to see the immediate object in view to achieve which the provision is made
and not its remote consequences. And it would be an interesting question of law
to be decided in an appropriate case as to the position and character of this
statutory 10% deposit in the distribution of the assets of a company in
winding-up proceedings. The argument that this provision was made for
increasing the deposits in nationalised banks or augmenting the investment in
Central and State securities is so farfetched that it leaves us unconvinced.
The second limb of the
submission is that this provision fails to accord reliable protection to the
depositors. We are at a loss to appreciate this submission. Undoubtedly, it is
not so effective as admitted by the Minister of Law, Justice and Company
Affairs while replying to a question in Parliament on September 15, 1981, to
ensure every depositor whose deposit is maturing in the year to be fully paid
out of the deposit amount. But no regulatory or protective measure can be
rejected as arbitrary on the short ground that it fails to fully protect the
person for whose benefit it is enacted. It is an argument of despair that let
there either be full protection or no protection. This is the fatalist attitude
which the court can neither encourage nor appreciate. One has to keep in view
the cumulative effect of protective and regulatory measures.
Anything English has such
an over-powering attraction that without any attempt at assimilating the
developmental stage of two wholly dissimilar societies, provisions of the
English Act were held out as a model and the impugned provision attacked by
impermissible comparisons. Reference was made to Protection of Depositors Act,
1963, of the U.K. and it was urged that to afford real protection, provision
similar to the U.K. Act should have been enacted. The submission leaves us
cold. What form a regulatory measure must take is for the Legislature to decide
and the court would not examine its wisdom or efficacy except to the extent
that art. 13 of the Constitution is attracted. Having said this, it may be
stated that except a little more detailed provision there is nothing very
useful or of such innovative nature as would be impressive even for a
recommendation.
Requiring the company to
invest, 10% of its deposits maturing in a year, in deposit with prescribed
institutions or in trust securities cannot be termed as deprivation of the
funds of the company. It is a measure to ensure that part of the funds of a
company are kept as liquid assets available for use for specified purpose. This
is clearly discernible from the marginal note of r. 3A. Regulatory measure
ensuring availability of liquid asset cannot be termed as deprivation of
property. It becomes an earmarked fund and it is well-known that the economic
planning may provide for earmarked funds and if by voluntary self-discipline
and sound economic planning financial viability is not maintained, a Welfare
State with planned economy may impose statutory discipline in larger public
interest. Such disciplinary measures cannot be termed deprivatory in character.
Even when the money is kept in deposit, it remains the property of the company
and available for its use albeit as provided in the statute. The Legislature
was not unaware of a known malady that the private sector companies were
becoming sick after incurring huge debts, rendering small investors destitutes,
heaping miseries on the weaker sections of the society and, therefore, if by a
measure a company which is permitted to attract deposits from the public
generally described as gullible, simultaneously an obligation is imposed to
keep an infinitesimally small portion of assets as liquid finance available for
meeting the obligations, namely, repayment of deposits maturing in a given
year, it cannot be said that this constitutes deprivation of company's fund. If
a trust can be compelled to deposit trust funds in a manner prescribed by the
statute, if a nationalised or scheduled bank is compelled to maintain requisite
liquidity, in respect of which a charge of deprivation of property cannot be
validly made, it is difficult to entertain the submission that, as a regulatory
measure, if a company, for the benefit it enjoys of an enabling power to invite
deposits from public, is asked to keep in deposit 10% of the deposits maturing
in a year the same would be deprivatory and therefore arbitrary.
In passing it was stated
that having regard to the numerous in-built safeguards in s. 58A of the
Companies Act, the imposition of 10% compulsory deposit under rule 3A is in
excess of the requirements of the protection and therefore unreasonable and
arbitrary. Having had the legacy of the laissez faire doctrine imposed by
foreign rulers till the end of the 19th century, and even with the tormenting
experience of South-Sea Bubble, the State was least inclined to interfere with
the working of the incorporated companies. But as noticed in the Statement of
Objects and Reasons while introducing the 1974 Amendment Act, which
incorporated s. 58A in the Companies Act, it was designed to meet cases of
abuse or distortion of system, which have, of late, assumed comparatively
serious proportions, and a stringent measure of control has become inevitable.
This is in accord with the report of the Jenkin's Committee in the United
Kingdom in which it was observed that the company is not a field of legislation
in which finality is to be expected, as the law falls to be applied to a
growing and challenging subject-matter and growing use of the company system as
an instrument of business and finances and the possibilities of abuse inherent
in that system. A vigilant Parliament keeping a close watch over this corporate
sector wielding considerable economic power has to take steps by doses to
eradicate the abuses of the economic power by these corporations. More
insidious the abuses of economic power, greater social control became
unavoidable for the health of national economy and protection of the persons
dealing with corporations. No legal step can be said final or unnecessary
because social control has inevitably to follow to defuse abuses of economic
power. In such a situation, to say, that a further measure of protection is
arbitrary in view of the protection already afforded is begging the issue and
the contention must be negatived on this short ground.
Having cleared the ground,
we must now turn to the main challenge posed on behalf of the petitioners to
the constitutional validity of r. 3A. It was urged that when a regulatory
measure imposes conditions the same must fairly and reasonably relate to the
objects sought to be achieved. Developing the argument it was submitted that if
r. 3A enacted in exercise of power conferred by s. 58A imposes a statutory
condition to deposit 10% of the amount collected by way of deposits by a
non-banking company and maturing in a given year in the manner prescribed, this
condition bears no relevance to the objects sought to be achieved, the object
being the protection of the depositors.. And if it does not bear relevance to the
object it is arbitrary. Reliance was placed on Pyx Granite Co. Ltd. v. Ministry of Housing and Local
Govt. [1958] 1 All ER 625 (CA). Lord Denning
posed the question whether if the permission of the planning authority before
breaking fresh surface is necessary, what conditions can the planning authority
lawfully impose. Answering the question, the learned Law Lord observed (at p.
633) :
"The principles to be applied are not, I
think, in doubt. Although the planning authorities are given very wide powers
to impose 'such conditions as they think fit', nevertheless the law says that
these conditions to be valid, must fairly and reasonably relate to the
permitted development. The planning authority are not at liberty to use their
powers for an ulterior object, however desirable that object may seem to them
to be in the public interest."
Lord Reid in Chertsey Urban
District Council v. Mixnam's Properties Ltd. [1965] AC 735 (HL) approved the
statement of law by Lord Denning reiterating that the same was already approved
in Fawcett Properties Ltd. v. Buckingham County Council [1961] AC 636 (HL).
There cannot be any quarrel with the proposition that where power is conferred
to effectuate a purpose and for that end in view to impose conditions, the
conditions to be valid must fairly and reasonably relate to the object sought
to be achieved. In the absence of this causal connection, the conditions may be
rejected as superfluous or arbitrary unrelated to purpose. The power conferred
by s. 58A on the Central Government to prescribe the limits up to which, the
manner in which and the conditions subject to which deposits may be invited or
accepted by non-banking companies had a definite object, namely, to check the
abuse by the corporate sector and to protect the depositors/investors. Mischief
was known and the regulatory measure was introduced to remedy the mischief. The
conditions which can be prescribed to effectuate this purpose must a fortiori,
to be valid, fairly and reasonably, relate to check-mate the abuse of juggling
with the depositors/investors hard earned money by the corporate sector and to
confer upon them a measure of protection, namely, availability of liquid assets
to meet the obligation of repayment of deposit which is implicit in acceptance
of deposit. Can it be said that the condititons prescribed by the Deposits
Rules are so irrelevant or have no reasonable nexus to the objects sought to be
achieved as to be arbitrary ? The answer is emphatically in the negative. Even
at the cost of repetition, it can be stated with confidence that the rules
which prescribed conditions subject to which deposits can be invited and
accepted do operate to extend a measure of protection against the notorious
abuses of economic power by the corporate sector, to the detriment of depositors/investors,
a segment of the society which can be appropriately described as weaker in
relation to the mighty corporation. One need not go so far with Ralph Nadar in
"America Incorporated" to establish that political institutions may fail
to arrest or control this ever-widening power of corporations. And can one wish
away the degree of sickness in private sector companies ? To the extent
companies develop sickness, in direct proportion the controllers of such
companies become healthy. In a welfare State, it is the constitutional
obligation of the State to protect socially and economically weaker segments of
the society against the exploitation by corporations. We, therefore, see no
merit in the submission that the conditions prescribed bear no relevance to the
object or the purpose for which the power was conferred under s. 58A on the
Central Government.
Basing the submission on
the assumption that r. 3A cannot extend even a semblance of protection to the
depositor, it was urged that if it was to be viewed in the wider spectrum of
regulation of credit system of the country, control of the circulation of the
money in India's economy and imposing financial discipline on corporate sector,
r. 3A is clearly ultra vires s. 58A, being far in excess of the requirements of
r. 58A. The submission ought to be rejected on the short ground that r. 3A does
extend some protection to a depositor, howsoever minimal it may be. When r. 3A
is viewed in the context of various other provisions devised to extend
protection to depositors and investors it does play a small but effective part
whereby liquid finance would be available to the company accepting deposits for
meeting its obligation of repaying the deposits maturing during the year.
Therefore, there is no merit in the submission.
It was next contended that
r. 3A is ultra vires the provision of s. 58A of the Companies Act as it is
beyond the scope and ambit of the section. Developing this argument, it was
submitted that if s. 58A is widely construed to encompass the mode or manner of
utilisation of the funds of the company which will include the deposits made
with the company, obviously s. 58A itself will be rendered unconstitutional as
transgressing the permissible limits of delegated legislation. While tracing
the history of the gradually increasing State control over the activities of
corporate sector, it was noticed that if the State would not effectively
control the activities checkmating the possible abuses, individuals dealing
with these economic giants would be at the mercy of the latter. May be that
this "hands off" attitude was respectable when laissez faire dictated
the State approach, but a welfare state cannot remain indifferent to this
sensitive field of exploitation of the weaker section. Section 58A amongst
various other things was designed to introduce some measure of control over the
non-banking companies inviting and accepting deposits in the ultimate interest
of the depositors, and by compelling limited liquidity in resources, the
society at large was sought to be protected from the ever haunting spectre of
sickness in industry often conveniently resorted to by the private sector
companies. Section 58A must receive its legitimate construction in the
back-drop of this fact-situation. Viewed from this angle, s. 58A will enable
the Central Govt. to prescribe conditions subject to which deposits can be
accepted and one such condition would be how to readily make, a small portion
of the deposit, available for repayment because while inviting and accepting
deposits, it is implicit therein that repayment would be assured on the date of
maturity.
The next limb of the
submission is : is there an excessive delegation of essential legislative
functions without prescribing any guidelines ? It is indisputable that the Companies
Act as a whole and s. 58A in part lays down a legislative policy, namely,
gradual, ever-widening and effective control of the corporate sector so as to
ensure a measure of protection to the persons dealing with it. The wisdom of
the legislative policy is not for the court to examine. And, in economic
legislation, the court should feel more inclined to judicial deference to
legislative judgment, (See R.K. Garg v. Union of India [1982] 133 ITR 239 (SC),
Prag Ice & Oil Mills v. Union of India [1978] 3 SCR 293 ; AIR 1978 SC 1296
and Rustom Cavasjee Cooper v. Union of India [1970] 40 Comp Cas 325 (SC).
The charge of excessive
delegation of essential legislative functions is wholly untenable. The history
of the company law in India, the Statement of Objects and Reasons, while
introducing the 1974 Amendment, regulatory measures undertaken by the RBI,
prior to the introduction of s. 58A, all point in the direction of taking
gradual steps with a view to introducing greater State intervention and control
so as to minimise the abuses by the corporate sector, an inescapable evil
directly attributable to concentration of economic power. The test which Prof.
Willis has set down in his "Constitutional Law", pages 586 & 587,
may be recalled :
"If a statute declares a definite policy,
there is a sufficiently definite standard for the rule against the delegation
of legislative power, and also for equality if the standard is reasonable. If
no standard is set up to avoid the violation of equality, those exercising the
power must act as though they were administering a valid standard."
The policy is definite,
guidelines are available from the history of the legislation and the Companies
Act taken as a whole and one cannot shut one's eye to articulated sickness in
private sector undertakings all around so that this feeble measure extending
only a semblance of protection can be struck down as arbitrary or as violating
the permissible limits of delegated legislation. Add to this the fact that
Deposits Rules have been framed in exercise of the power conferred by ss. 58A
and 642 of the Companies Act. Section 642 requires that every rule enacted in
exercise of the power conferred by it, must be placed before each House of
Parliament for a period of thirty days and both Houses have power to suggest
modification in the proposed rules. This control of Parliament is sufficient to
check any transgression of permissible limits of delegated legislation by the
delegate. In D.S. Garewal v. Slate of Punjab [1959] Suppl. 1 SCR 792, 803; AIR 1959
SC 512, 518, the Constitution Bench of this court observed that the requirement
that the rules are to be placed before both Houses of Parliament with power to
suggest modification would make it perfectly clear that Parliament has in no
way abdicated its authority, but is keeping strict vigilance and control over
its delegate.
Mr. O.P. Malhotra raised a
contention as to the legislative competence of Parliament to enact s. 58A and
the Deposits Rules enacted in exercise of the power conferred by s. 58A read
with s. 642 of the Companies Act, 1956. This is only to be mentioned to be
rejected. Mr. Malhotra urged that when a company invites and accepts deposits,
there comes into existence a lender-borrower relationship between the depositor
and the company, and therefore the legislation dealing with the subject
squarely falls under entry 30 of the State List, "money-lending and money
lenders". If this submission were to carry conviction, every depositor in
the bank would be a money-lender and the transaction would be one of
money-lending. Is the banking industry to be covered under entry 30 ? On the
other hand, entry 45 in Union List is a specific entry "Banking" and,
therefore, any legislation relating to banking would be referable to entry 45
in the Union List. Entry 43 in the Union List is : "incorporation,
regulation and winding-up of trading corporations, including bank, insurance,
financial corporations but not including co-operative societies". Entry 44
refers to "incorporation, regulation, and winding-up of the corporation
whether trading or not when business is not confined to one State but not
including universities". Obviously the power to legislate about the
companies is referable to entry 44 when the objects of the company are not
confined to one State and irrespective of the fact whether it is trading or
not. When a law is impugned on the ground that it is ultra vires the powers of
the legislature which enacted it, what has to be ascertained is the true
character of the legislation. To do that, one must have regard to the enactment
as a whole, to its objects and to the scope and effect of its provisions (See
A. S. Krishna v. State of Madras [1957] 1 SCR 399, 410; AIR 1957 SC 297, 303.
To resolve the controversy if it becomes necessary to ascertain to which entry
in the three lists, the legislation is referable to, the court has evolved the
doctrine of pith and substance. If in pith and substance, the legislation falls
within one entry or the other but some portion of the subject-matter of the
legislation incidentally trenches upon and might enter a field under another
list, then it must be held to be valid in its entirety, even though it might
incidentally trench on matters which are beyond its competence. (See Ishwari
Khetan Sugar Mills P. Ltd. v. State of U.P. [1980] 3 SCR 331, 343 ; AIR 1980 SC
1955, 1964, Union of India v. Harbhajan Singh Dhillon [1972] 83 ITR 582 (SC),
Kerala State Electricity Board v. Indian Aluminium Company Lid. [1976] 1 SCR
552 ; AIR 1976 SC 1031, and Stale of Karnataka v. Ranganatha Reddy [1978] 1 SCR
641 ; AIR 1978 SC 215. Applying this doctrine of pith and substance, s. 58A
which is incorporated in the Companies Act is referable to entry 43 and 44 in
the Union List and the enactment viewed as a whole cannot be said to be legislation
on money-lenders and money-lending or being referable to entry 30 in the State
List. Undoubtedly therefore, Parliament had the legislative competence to enact
s. 58A.
Mr. G.A. Shah canvassed one
more contention. After stating that r. 3A became operative from April 1, 1978,
he specifically drew attention to the proviso to r. 3A(1) which required that
with relation to the deposits maturing during the year ending on the 31st day
of March, 1979, the sum required to be deposited or invested under sub-r. 3A(1)
shall be deposited or invested before the 30th day of September, 1978. It was
then contended that this provision would necessitate depositing 10% of the
deposits maturing during the year ending with 31st March, 1979, which may have
been accepted prior to the coming into force of r. 3A and to this extent the
rule has been made retrospective and as there was no power conferred by s. 58A
to prescribe conditions subject to which deposits can be accepted
retrospectively r. 3A is ultra vires s. 58A. Unquestionably, r. 3A became
operative from April 1, 1978. The obligation cast by r. 3A is to deposit 10% of
the deposits maturing during the year in the manner prescribed in r. 3. Some
deposits would be maturing between April 1, 1978, and March 31, 1979. To
provide for such marginal situation, a proviso is inserted. Does it make the
rule retroactive ? Of course, not. In D.S. Nakara v. Union of India [1983] 1
SCC 305; AIR 1983 SC 1 30, a Constitution Bench of this court has, in this
context, observed as under (at page 143 of AIR):
"A statute is not properly called a
retroactive statute because a part of the requisites for its action is drawn
from a time antecedent to its passing."
Viewed from this angle, the
provision can be properly called prospective and not retroactive. Therefore,
the contention does not commend to us.
It was next contended that
while giving the definition of the expression "deposit" in the
dictionary clause of the Deposits Rules, the exclusionary clause is so widely
worded that it has successfully kept a large number of similarly situated
corporations outside the purview of the Act and the picking and choosing is so
arbitrary that one can say with confidence that only private sector companies are
singled out for this regulatory treatment. The submission overlooks the object
and purpose underlying enacting s. 58A and the Rules made thereunder. As has
been repeatedly noted, it is a regulatory measure to checkmate the abuses,
which private sector corporations are prone to. If this object is kept in view,
the exclusionary clause explains itself. To enumerate briefly, the bodies
excluded from the operation of the rules are the Central Govt. and the State
Govt., State Bank of India, Nationalised Banks, Industrial Finance Corporation
of India, State Financial Corporations established under the State Financial
Corporations Act, Industrial Development Bank of India, Electricity Boards
constituted under the Electricity (Supply) Act, Life Insurance Corporation of
India and such other bodies which if viewed properly disclose a perspective in
enacting the exclusionary clause. The perspective is that the bodies which are
accountable to public and Parliament as also those whose failure to meet with
obligation is inconceivable such as the Central Govt. and the State Govt. are
excluded from the regulatory measure. This perspective, in fact, reinforces the
conclusion that the control was to be exercised over those corporations which
are prone to abuse the economic power enjoyed by them. We, therefore, see
nothing arbitrary or unreasonable in the exclusionary clause.
A detailed analysis of the
provisions, in the light of the submissions, would clearly negative any
contention of the violation of arts. 14 and 19(1)(g) and we must reject the
challenge to the constitutionality of s. 58A and the rules made thereunder.
Not a single contention
canvassed on behalf of the petitioners, individually or collectively, bears
scrutiny and, therefore, the petitions and the appeals must fail and are
dismissed with costs in each matter.
Petitions and appeals dismissed.
[1986] 59 COMP. CAS. 654 (AP)
HIGH COURT OF ANDHRA PRADESH
v.
CHENNAKESAV REDDY, J.
CRIMINAL
REVISION CASE NO. 455 OF 1981.
(CRIMINAL
REVISION PETITION NO. 449 OF 1981).
DECEMBER 22, 1981
V. Jagannadha Rao and
V. Venkataraman for the Petitioners.
K. Subrahmanya Reddy for
the Respondent.
Chennakesav Reddy, J. —The question that arises for consideration in this criminal
revision case is, whether the non-filing of a return of deposits by the
companies under rule 10 of the Companies (Acceptance of Deposits) Rules, 1975,
is a continuing offence punishable under rule 11 of the said Rules.
The Registrar of Companies,
Andhra Pradesh, Hyderabad, filed a complaint before the Special Judge for
Economic Offences, Hyderabad, alleging that the first accused company and
accused Nos. 2 to 4, who are the directors of the first accused company, have
failed to file with him before June 30, 1979, a return of deposits for the year
1978 under rule 10 of the Companies (Acceptance of Deposits) Rules, 1975
(hereinafter called "the Deposits Rules"), and, therefore, they
rendered themselves liable for punishment under rule 11 of the said Rules.
The accused contended that
the complaint filed against them was barred by limitation under section 468,
Cr. PC.
The learned Special Judge
held that the contravention in question was a continuing offence and, therefore,
the proceedings were protected by the provisions of section 472, Criminal
Procedure Code. Consequently, he convicted the
accused under rule 11 of the Deposits Rules and sentenced each of them to pay a
fine of Rs. 200, made up of a fine of Rs. 100 for failure to file the return of
deposit within the prescribed time and a further fine of Rs. 100 for the period
from July 1, 1979, to November 12, 1980, being the date of the filing of the
complaint. The Special Judge further ordered, that on realisation of the fine
amount, 2/5ths thereof be paid to the complainant towards the cost of the
proceedings. The accused were further directed to file a return in the
prescribed form duly certified by the auditor of the company for the relevant
year within three months from the date of the order, failing which they shall
be liable for action under section 614A(2) of the Companies Act 1956.
Aggrieved by the said
conviction and sentence, the accused have preferred this criminal revision
case. The only question that falls for consideration in this case is whether
the offence under rule 10 of the Deposits Rules, is a continuing offence
punishable under rule 11. It is, therefore, necessary to read rules 10 and 11
of the Deposits Rules.
"Rule:10. Return of
deposits to be filed with the Registrar.
10(1). Every company to
which these rules apply, shall on or before the 30th day of June of every year,
file with the Registrar, a return in the form annexed to these rules and
furnishing the information contained therein as on the 31st day of March of
that year (duly certified by the auditor of the company).
(2) A copy of the return
shall also be simultaneously furnished to the Reserve Bank of India.
[NOTES: 1. The amendment
Rules 1978 have, with effect from April 1, 1978, inserted the words "duly
certified by the auditor of the company" at the end of sub-rule(1). The
effect of the amendment will be that the return of deposits required to be
filed with the Registrar would now be certified by the company's auditor.]
PENALTY:
11. If a Company or any
other person contravenes any provision of these rules for which no punishment
is provided in the Act, the company and every officer of the company, who is in
default or such other person shall be punishable with fine which may extend to
five hundred rupees and where the contravention is a continuing one, with a
further fine which may extend to fifty rupees for every day after the first
during which the contravention continues."
What is a continuing
offence is not defined in the Criminal Procedure Code, nor is it defined in the
Deposits Rules, although Rule 11 employs the words "where the
contravention is a continuing one".
Section 472, Criminal
Procedure Code, provides that in the case of a continuing offence, a fresh
period of limitation shall begin to run at every moment of the time during
which the offence continues. If the offence is a continuing one, there is
unbroken succession and the offence continues to exist. There is no cessation
of the offence until the contravention is remedied.
In P.R. Aiyar's Law
Lexicon, a continuing offence is explained as:
"A transaction or a
series of acts constituting an offence set on foot by a single impulse, and
operated by an unintermittent force, no matter how long a time may occupy.
The expressions "continuing
offence" and "continuing contravention" must mean the same thing
since in each case the offence consists of contravention of certain
rules."
According to Stroud's
Judicial Dictionary, "continuing offence" meant "only an offence
which is from its nature susceptible of continuance".
In State of Bihar v.
Deokaran Nenshi, AIR 1973 SC 908, the Supreme Court has explained the meaning
of the expression "continuing offence" thus (at p. 909):
"Continuing offence is
one which is susceptible of continuance and is distinguishable from the one
which is committed once and for all. It is one of those offences which arises
out of a failure to obey or comply with a rule or its requirement and which
involves a penalty, the liability for which continues until the rule or its
requirement is obeyed or complied with. On every occasion that such
disobedience or non-compliance occurs and recurs, there is the offence
committed. The distinction between the two kinds of offences is between an act
or omission which constitutes an offence once and for all and an act or
omission which continues and, there fore, constitutes a fresh offence every
time or occasion on which it continues. In the case of a continuing offence,
there is thus the ingredient of continuance of the offence, which is absent in
the case of an offence which takes place when an act or omission is committed
once and for all".
The Supreme Court in that
case held that regulation 3 read with section 66 of the Mines Act makes failure
to furnish annual returns for the preceding year by the 21st of January of the
succeeding year an offence. But regulation 3 does not lay down that the owner,
manager, etc., of the mine concerned would be guilty of an offence if he
continues to carry on the mine without furnishing the returns or that the
offence continues until the requirement of regulation 3 is complied with. There
is nothing in regulation 3 or in any other provision in the Act or the
regulations which renders the continued
non-compliance an offence until its requirement is carried out.
In a more recent case,
viz., CWT v. Suresh Seth [1981] 129 ITR 328 (SC), the distinctive nature of a
continuing wrong is explained thus (at p. 338):
"The true principle
appears to be that where the wrong complained of is the omission to perform a
positive duty requiring a person to do a certain act, the test to determine
whether such a wrong is a continuing one is whether the duty in question is one
which requires him to continue to do that act. Breach of a covenant to keep the
premises in good repair, breach of a continuing guarantee, obstruction to a
right of way, obstruction to the right of a person to the unobstructed flow of
water, refusal by a man to maintain his wife and children when he is bound to
maintain under law and the carrying on of mining operations or the running of a
factory without complying with the measures intended for the safety and
well-being of workmen may be illustrations of continuing breaches or wrongs
giving rise to civil or criminal liability, as the case may be, de die in diem
"
In that case, the Supreme
Court held that the failure to file a return of wealth-tax under section 14(1),
on or before the prescribed date, was not a continuing default and penalty
alone has to be computed for that period in accordance with section 18(1)(a) of
the Wealth-tax Act.
In Commissioner of
Wealth-tax v. R.D. Chand [1977] 108 ITR 787 (AP) this court also has held that
"the default in filing a return before the due date under section 14(1) of
the Wealth-tax Act, 1957, is a completed default and not a continuing
default."
In United Savings and
Finance Co. P. Ltd. v. Dy. Chief Officer, Reserve Bank of India [1980] 50 Comp
Cas 518 (Cal), the Calcutta High Court has held that the offence under section
58B of the Reserve Bank of India Act, 1934, is a continuing offence and there
was no limitation for filing a complaint. Their Lordships observed (at p. 524):
"The express language
of section 58B(2) goes to indicate that failure or refusal to comply with the
terms of the said section creates an offence and continues to be an offence so
long as such failure or refusal persists. In other words, so long as the
requirement of the said section is not complied with, the offence
continues."
In Public Prosecutor v.
Ratnam Pillai, AIR 1958, Mad 155, the Madras High Court has held that the
failure to apply for and obtain a licence to run a motor of high horse-power
under the Factories Act, 1948, was a single specific act, which the owner of
the factory should have complied with, and his failure to do so was not a
continuing act.
The learned counsel for the
respondent invited my attention to the decision of the Patna High Court in
State v. Kunja Behari Chandra, AIR 1954 Pat 371, wherein it was held that
"not to have constructed the creche as required within the time allowed is
a contravention of rule 3(a) and to carry on mining operation without the
creche is a continuing contravention of the same rule. Section 39, Mines Act,
1923, provides for punishment for continuing contravention. Thus, the
contravention of rule 3(a) of the Mines Creche Rules, 1946, by the manager of a
mine is a continuing one, and there can be no question of the prosecution being
barred under section 42 of the Mines Act".
This decision was approved
by the Supreme Court in Commissioner oj Wealth-tax v. Suresh Seth [1981] 129
ITR 328 (SC).
From the decisions referred
to above, what emerges is that the question, whether a contravention made is a
continuing one or a completed one, has to be decided from the very language of
the rule contravened. In this case, rule 10 directs that every company to which
these rules apply, shall file' with the Registrar, on or before 30th June, a
return in the form annexed to the rules, furnishing the information. Part B of
the form provides that particulars of deposits as on 31st March of the previous
year should be brought forward and mentioned in the return. Unless the previous
year's balance of deposits is mentioned in the return, the return for the next
year cannot be submitted. Clause (i) of sub-rule (2) of rule 3 directs that no
company shall accept any deposit against unsecured debenture or any deposit
from a shareholder or any deposit guaranteed by any person who, at the time of
giving such guarantee is a director of a company, and under the rules, deposits
of the kind referred to in rule 3(2)(1) are to be shown in Part B of the return
filed under rule 10. Therefore, the opening balance in the return must be the
deposits made in the previous year, and that has to be shown as the opening
balance in the return for the next year. Thus, the process continues and the
company cannot file a complete return for the next year until the return for
the year defaulted is furnished. So, the contravention under rule 10 of the Deposits
Rules is a continuing one. Rule 11 makes the contravention of any provision of
the rules, for which no punishment is provided in the Act, punishable under
rule 11, and where the contravention is a continuing one, it is made punishable
with a further fine which may extend to fifty rupees for every day after the
first during which the contravention continues. Therefore, the court below
rightly held that the contravention in this case was a continuing one.
The conviction and the
sentence are, therefore, confirmed and the criminal revision case is dismissed.
[1987] 61 COMP. CAS. 728 (
HIGH COURT of
U.P. Paper Corporation Pvt. Ltd.
v.
Registrar of Companies
SHAMSUDDIN AHMED, J.
JULY 4, 1986
Partha Sarathi Bose for the petitioner.
B.K.
Ghosh and D.K. Mukherjee for Opposite Party
Shamsuddin
Ahmed, J.—These
two applications are taken up together for hearing as they involve the same
question of law. It appears that opposite party No. 1 filed a complaint before the
learned Chief Metropolitan Magistrate,
Calcutta, alleging that the petitioners have violated the provisions of rule 10
read with section 58A of the Companies Act, 1956, as they have failed to submit
a return in terms of the provisions of rule 10 of the Companies (Acceptance of
Deposits) Rules, 1975. It was stated that under the provisions of the said
Rules, they were required to file the return on or before 30th June, every
year, with the complainant in prescribed forms furnishing the information contained
therein. This failure to submit the return is punishable under rule 11 of the
said Rules. Rule 11 provides that if a company or any other person contravenes
any of the provisions of these rules, the company and other officer of the
company who was in default or such other person shall be punishable with fine
which may extend to Rs. 500 and if the contravention is a continuing one, with
a further fine which may extend to Rs. 50 for every day after the first during
which the contravention continues. The complainant in the petition of complaint
contended that since the alleged offence is an offence of continuing nature,
cognizance is not barred by limitation in terms of section 472 of the Criminal
Procedure Code. In the petition of complaint, it was also alleged that till the
time of filing the complaint, no return has been filed by the accused persons.
The learned C.M.M.,
Mr. Bose, appearing for the
petitioners, has relied on a decision in National Cotton Mills v. Assistant
Registrar of Companies [1983] CHN 180; [1984] 56 Comp Cas 222 (Cal). In that
case, a prosecution was lodged against the petitioners under section 162 of the
Companies Act for violation of the provisions of section 159 of the said Act.
In terms of the provisions of section 159, the due date for filing of the
returns was 28th November of different years. All the complaints were filed
beyond the period of limitation which was six months in that case. In the
revisional application for quashing the proceedings, it was contended that the
cognizance was bad because it was barred by limitation. The complainant
contended that the offence was a continuing one and, therefore, not barred by
limitation. The court held that section 159 of the Companies Act does not
impose any liability which continues. The offence of the breach is complete
with the failure to furnish the return in the manner or within the time
stipulated. The requirement of section 159 was that every company is to file
with the Registrar a return containing the particulars specified in the section
within 60 days from the date on which the annual general meeting is held. The
court held that the offence is complete once and for all when the date fixed by
the said provisions expires. There was nothing to indicate that the offence
survives even after the expiry of the date so fixed by the section itself. It
also considered a decision of this court in Ajit Kumar Sarkar v. Assistant
Registrar of Companies [1979] 49 CompCas 909 (Cal) ; 83 CWN108, which gave a
contrary view. According to Mr. Bose, since the provisions of rule 11 are
identical to the provisions of section 162, the learned Magistrate was not
justified in holding that the offence alleged herein is a continuing offence.
Mr. Ghoshal, appearing for
the opposite parties, has relied on the decision in State of
Let us now examine the
provisions of rule 10 of the Companies (Acceptance of Deposits) Rules, 1975.
Rule 10 runs :
"Return
oj deposits to be filed with the Registrar.—Every company to which these rules apply, shall on or before the 30th day of
June, of every year, file with the Registrar, a return in the form annexed to
these rules and furnishing the information contained therein as on the 31st day
of March of that year duly certified by the auditor of the company."
Rule 11 provides for
penalty. It provides that if a company or any other person contravenes any
provision of these rules for which no punishment is provided in the Act, the
company and every officer of the company who is in default or such other person
shall be punishable with fine which may extend to Rs. 500 and where the
contravention is a continuing one, with a further fine which may extend to Rs.
50 for every day after the first during which the contravention continues.
Section 162 of the Companies Act specified that non-compliance of section 159,
160 or 161 will be punished with fine which may extend to Rs. 50 for every day
during which the default continues. It specifies that offences for
non-compliance with section 159, 160 or 161 will be punished with day-to day
fine. Rule 11 does not specify which of the provisions of those rules will be
penalised by day-to-day fine. It only states that where the contravention is
continuing, then a day-to-day fine shall be imposed. So, contravention of which
rules constitutes a continuing offence has to be decided independent of the
penal provision of rule 11. In this sense, the provision of rule 11 is not
identical with the provisions of section 162 of the Companies Act. Let us now
see whether the requirement of section 10 is of a continuing nature. The
Companies (Acceptance of Deposits) Rules, 1975, was framed in exercise of the
powers conferred by section 58A of the Companies Act. Section 58A of the
Companies Act provides that the Central Government may, in consultation with
the Reserve Bank of India, prescribe the limits up to which, the manner in
which and the conditions subject to which deposits may be invited or accepted
by a company either from the public or from its members. It is, therefore,
apparent that these rules were framed to provide the limits up to which, the
manner in which and the conditions subject to which deposits may be invited or
accepted by a company. On a perusal of the rules in its entirety, it will be
seen that a good number of restrictions have been imposed on the company in
accepting deposits. Rule 10 provides that a return is required to be submitted
in the annexed form. A look at the annexed form will show that a lot of
information is required to be furnished by the company. The regulation and
administration of the said Rules require that such information has to be
furnished with the Registrar of Companies. Having regard to the scope and
object of these Rules, the requirement of filing the return continues so long
as it is not filed with the Registrar. The date mentioned in the said Rule,
namely, 30th day of June, is the last date by which such return can be filed.
Failure to file return is punishable under rule 11 but that does not make the
company or the person required to file the return immune from filing the said
return after that date. If that is so, then by paying a fine, these rules can
be avoided by a company or the person required to file the return. Therefore,
in my view, the requirement of filing the return under rule 10 continues even
after the expiry of 30th day of June of each year. Accordingly, I hold that the
offence arising out of non-compliance of rule 10 is a continuing offence and
the instant proceedings are not barred by limitation.
Mr. Bose also contended
that the petition of complaint does not disclose how the provisions of section
58A of the Companies Act have been violated. It is clear from the petition of
complaint that the Rules framed under the authority of section 58A have been
violated by not filing the return as required under rule 10 of the Companies
(Acceptance of Deposits) Rules, 1975. Therefore, I do not find any strength in
this submission.
As a result, this
application fails and is rejected.
Shree Dharma
Sugar Industries (P.) Ltd.
v.
P.A. KULKARNI J.
CRL.
REVISION PETITION NO. 44 OF 1986 CONNECTED WITH
CRL. REVISION PETITION NOS. 51 TO 56 OF 1986
SEPTEMBER 2, 1987
F.V. Patil for the Petitioner.
C. Shivappa for the Respondent.
P.A. Kulkarni.—The learned Senior Central Government Standing
Counsel, Shri C. Shivappa, prayed for time. These are all matters pending since
1986. The point involved in these cases is a very simple one which does not
require any deep and serious consideration—so far as the facts are concerned.
Therefore, his request for time is rejected.
Criminal Revision Petition No. 44 of 1986 by the accused is directed
against the judgment and order of conviction and sentence dated December 30,
1985 passed by the Special Court for Economic Offences, Bangalore District,
Bangalore, in C.C. No. 94 of 1985 convicting the accused under rule 11 of the
Companies (Acceptance of Deposits) Rules, 1975, and sentencing each of the
accused to pay a fine of Rs. 100 for not submitting the return within the
prescribed time and imposing a further fine of Rs. 100 on each of the accused
for not submitting the return from June 30, 1975 till February 5, 1985 being
the date of filing of the complaint and in default to pay the fine or to undergo simple
imprisonment for a month.
Criminal Revision Petition No. 51 of 1986 by the accused is directed
against the judgment and order of conviction and sentence dated December 30,
1985 passed by the Special Court for Economic Offences, Bangalore District,
Bangalore, in C.C. No. 95 of 1985 convicting
the accused under rule 11 of the Companies (Acceptance of Deposits) Rules, 1975
and sentencing each of the accused to pay a fine of Rs. 100 for not submitting
the return within the prescribed time and imposing a further fine of Rs. 100 on
each of the accused for not submitting the return from June 30, 1976 till
February 5, 1985 being the date of filing of the complaint and in default to
pay the fine or to undergo simple imprisonment for a month.
Criminal Revision Petition No. 52 of 1986 by the accused is directed
against the judgment and order of conviction and sentence dated December 30,
1985 passed by the Special Court for Economic Offences, Bangalore District,
Bangalore, in C.C. No. 96 of 1985 convicting the accused under rule 11 of the
Companies (Acceptance of Deposits) Rules 1975 and sentencing each of the
accused to pay a fine of Rs. 100 for not submitting the return within the
prescribed time and imposing a further fine of Rs. 100 on each of the accused
for not submitting the return from June 30, 1977 till February 5, 1985 being
the date of filing of the complaint and in default to pay the fine or to
undergo simple imprisonment for a month.
Criminal Revision Petition No. 53 of 1986 by the accused is directed
against the judgment and order of conviction and sentence dated December 30,
1985 passed by the Special Court for Economic Offences, Bangalore District,
Bangalore, in C.C. No. 97 of 1985 convicting the accused under rule 11 of the
Companies Act (Acceptance of Deposits) Rules, 1975 and sentencing each of the
accused to pay a fine of Rs. 100 for not submitting the return within the
prescribed time and imposing a further fine of Rs. 100 on each of the accused
for not submitting the return from June 30, 1978 till February 5, 1985 being
the date of filing of the complaint and in default to pay the fine or to
undergo simple imprisonment for a month.
Criminal Revision Petition No. 54 of 1986 by the accused is directed
against the judgment and order of conviction and sentence dated December 30,
1985 passed by the Special Court for Economic Offences, Bangalore District,
Bangalore, in C.C. No. 98 of 1985 convicting the accused under rule 11 of the
Companies (Acceptance of Deposits) Rule, 1975 and sentencing each of the
accused to pay a fine of Rs. 100 for not submitting the return within the
prescribed time and imposing a further fine of Rs. 100 on each of the accused
for not submitting the return from June 30, 1979 till February 5, 1985 being
the date of filing of the complaint and in default to pay the fine or to
undergo simple imprisonment for a month.
Criminal Revision Petition No. 55 of 1986 by the accused is directed
against the judgment and order of conviction and sentence dated December 30, 1985 passed by the Special
Court for Economic Offences, Bangalore District, Bangalore, in C.C. No. 99 of
1985 convicting the accused under rule 11 of the Companies (Acceptance of
Deposits) Rules, 1975, and sentencing each of the accused to pay a fine of Rs.
100 for not submitting the return within the prescribed time and imposing a
further fine of Rs. 100 on each of the accused for not submitting the return
from June 30, 1980 till February 5, 1985 being the date of filing of the
complaint and in default to pay the fine or to undergo simple imprisonment for
a month
Criminal Revision Petition No. 56 of
1986 by the accused is directed against the judgement and order of conviction
and sentence dated December 30, 1985 passed by the Special Court for Economic
Offences, Bangalore District, Bangalore, in C.C. No. 100 of 1985 convicting the
accused under rule 11 of the Companies (Acceptance of Deposits) Rules, 1975 and
sentencing each of the accused to pay a fine of Rs. 100 for not submitting the
return within the prescribed time and imposing a further fine of Rs. 100 on
each of the accused for not submitting the return from June 30, 1981 till
February 5, 1985 being the date of filing of the complaint and in default to
pay the fine or to undergo simple imprisonment for a month.
All these cases have been filed
for not filing the return on or before 30th June of every year. All the said
cases are filed for not filing the return for the period from July 1, 1974 to
June 30, 1975, for the period from July 1, 1975 to June 30, 1976, for the
period from July 1, 1976 to June 30, 1977, for the period from July 1, 1977 to
June 30, 1978, for the period from July 1, 1978 to June 30, 1979, for the
period from July 1, 1979 to June 30, 1980 and for the period from July 1, 1980
to June 30, 1981, on or before June 30, of each concerned year.
Rule 10 of the Companies
(Acceptance of Deposits] Rules,. 1975 reads as :
"Return of deposits to be
filed with the Registrar.—(1) Every company to which these rules apply,
shall on or before the 30th day of June, of every year, file with the
Registrar, a return in the form annexed to these rules and furnishing the
information contained therein as on the 31st day of March of that year.
(2) A copy of the return shall also simultaneously be furnished to the
Reserve Bank of
Therefore, rule 10 makes it obligatory on every company to file the
return in respect of the deposits on or before June 30 of every year. Rule 11
prescribes punishment for not filing the return as prescribed by rule 10. Rule
11 reads as :
"Penalty,—If a company or any other person contravenes any provision
of these rules for which no punishment is provided in the Act, the company and
every officer of the company who is in default or such other person shall be
punishable with fine which may extend to five hundred rupees and where the
contravention is a continuing one, with a further fine which may extend to
fifty rupees for every day after the first during which the contravention
continues."
Learned counsel Shri Patil contended that the offence in each case was
committed once for all by June 30, of every year when the return was not filed.
According to him, it is an offence committed once for all and it is not a
continuing offence. He relied for that purpose on State of
"A continuing offence is one which is susceptible of continuance and
is distinguishable from the one which is committed once and for all. It is one
of those offences which arises out of a failure to obey or comply with a rule
or its requirement and which involves a penalty, the liability for which
continues until the rule or its requirement is obeyed or complied with. On
every occasion that such disobedience or non-compliance occurs and recurs,
there is the offence committed. The distinction between the two kinds of
offences is between an act or omission which constitutes an offence once and
for all and an act or omission which continues and, therefore, constitutes a
fresh offence every time or occasion on which it continues. In the case of a
continuing offence, there is thus the ingredient of continuance of the offence
which is absent in the case of an offence which takes place when an act or
omission is committed once and for all."
In the said case decided by the Supreme Court, the complaint was not
filed within six months. Therefore, the Supreme Court held that the complaint
was time-barred as the offence in question fell within the substantive part of
section 79 and not under the explanation attached to it. The Supreme Court has
stated in Bhagirath Kanoria v. State of M.P., AIR 1984 SC 1688, in para 15 as
under :
"In Emperor v. Karsandas, AIR 1942 Bom 356, section 390(1) of the
Bombay City Municipal Act, 1888, provided that no person shall newly establish
in any premises any factory of a certain description without the previous
permission of the Commissioner nor shall any person work or allow to be worked
any such factory without such permission. It was held by the Hihh Court that
establishing a new factory was an offence committed one and for all but,
working it without permission was a continuing offence."
In para 18. the Supreme Court has stated as:
"The decision of this court
in State of Bihar v. Deokaran Nenshi, AIR 1973 SC 908, to the effect
that failure to furnish returns before the due date is not a continuing offence
must be confined to case of failure to furnish returns. It cannot be extended
to cases like those before us in which, the contravention is not of a
procedural or formal nature and goes against the very grain of the statute
under consideration."
In the said Bhagirath Kanoria's case AIR 1984 SC 1688 the employer's
contribution to the Provident Fund had not been paid and, therefore, the.
Supreme Court held, looking to the nature of the contravention, that the
non-deposit of the contribution by the employer was a continuing offence and it
was not an offence once and for all. The view taken by this court in Provident
Fund Inspector v. Dayananda [1979] 1 Kar LJ 324 that non-payment of
contribution and non-submission of return as required by paras 30(1) and 38(1)
of the Employees' Provident Fund Scheme, 1952, are offences committed
completely on the expiry of the period of 15 days and 25 days contemplated by
para 38(1) and are not continuing offences, runs contrary to the said Supreme
Court decision reported in Bhagirath Kanoria v. State of M.P. AIR 1984 SC 1688.
Rule 10 in this case requires that every company to which the rules apply,
shall on or before the 30th day of June, of every year, file with the
Registrar, a return in the form annexed to the rules and furnish the
information contained therein as on the 31st day of March of that year duly certified
by the auditor of the company. Therefore, the non-filing of the return as laid
down by the rule 10 on or before 30th June of every year shall be deemed to
have been committed once for all. Once the offence is committed under rule 10,
it cannot be said that the offence of non-filing of the return on or before
June 30 of every year shall continue to be committed till the return is filed.
The rule expects that the return should be filed on or before June 30, of every
year. If the return is not filed on or before June 30 of every year, the
offence contemplated by rule 10 is complete once for all and there is no
question of continuity at all. The learned Senior Central Government Standing
Counsel, Shri Shivappa, tried to make a distinction between an omission to file
a return and the commission of an offence of not filing a return. The
distinction is without much substance. What is made punishable by rule 10 is
the omission to file the return on or before June 30 of every year. If that
omission is made an offence, it will be an offence committed once for all. Rule
10 thereafter does not place any obligation on the company to file the return.
Therefore, the non-filing of the return is made punishable with fine under 11.
Rule 11 which prescribes penalty lays down that if a company or any other
person contravenes any provision of the rules for which no punishment is
provided in the Act, the company and every officer of the company who is in
default or such other person shall be punishable with fine which may extend to
Rs. 500 and where the contravention is a continuing one, with a further fine
which may extend to Rs. 50 for every day after the first during which the
contravention continues. According to the learned Senior Central Government
Standing Counsel, Shri Shivappa, the prescription of a fine of Rs. 50 per day
even thereafter indicated that the offence contemplated by rule. 10 was a
continuing one. What rule 11 prescribes is that the offence as such shall be
punishable with fine which may extend to Rs. 500 and if the offence is a
continuing one, the court can punish the offender with a fine which may extend
to Rs. 50 for every day. Therefore, the attraction of the latter part of rule
11 would depend upon whether the offence in question is a continuing one. If
the offence is not a continuing one and if the offence is committed once for all, the question of imposing a
fine for every day thereafter will not
arise at all.
As already stated above by me, the offence of non-filing or the omission
to file the return on or before June 30, of every year is complete once for all
if the company or its officer omits to file the return by that day. Therefore,
the offence covered by rule 11, in my opinion, cannot be said to be a
continuing one. The facts involved in these cases are quite similar to the one
reported in State of Bihar v. Deokaran Nenshi, AIR 1973 SC 908 wherein the
company concerned had omitted to furnish the return as required by section 66
read with section 79 of the Mines Act. The Supreme Court has clearly laid down
that non-filing of the return under section 66 read with section 79 of the
Mines Act, amounted to an offence which can be committed once for all and it is
not a continuing offence. I do not find much difference between the provisions
of the Mines Act and the offence covered by rule 10 read with rule 11 of the
Companies (Acceptance of Deposits) Rules, 1975.
Section 468 of Criminal Procedure Code reads as :
"468. (1) Except as otherwise provided elsewhere
in this Code, no court shall take cognizance of an offence of the category
specified in sub-section (2), after the expiry of the period of limitation.
(2) The
period of limitation shall be—
(a) six months, if the offence is punishable
with fine only."
(Rest not necessary)
In these cases, the offence is punishable with fine only. Therefore, the
period of limitation is six months. The period of limitation as laid down by
section 468, Criminal Procedure Code, would commence on the date of the
offence. The date of offence in these cases is the one which falls on June 30
of every year. In these cases, the complaints have been filed after the expiry
of six months. Therefore all the complaints are barred by limitation.
Learned Senior Central Government Standing Counsel, Shri Shivappa, appearing
for the Central Government submitted that if the company omits to file the
return as contemplated by rule 10, the very object of the said rule is
violated. It is for the rule making authorities concerned to make the necessary
provision in the rules. So long as the rules do not make any provisions as to
what should happen if the filing of the return as contemplated by rule 10 is
not complied with, the courts cannot do anything in the matter.
Therefore, under the circumstances, the conviction and sentence imposed
on the accused in all these cases are set aside. All the revisions are allowed.
The accused in all these cases are acquitted of all the charges levelled
against them.
[1991] 71 COMP. CAS. 509 (
HIGH COURT OF
v.
S.N. SAPRA J.
SEPTEMBER 11, 1990
B.N.
Nayyar, B.R. Sethi and Ms. Sudha Srivastava for the Appellant.
N.S. Gupta,
for the Respondent.
JUDGMENT
Sapra J.—The petitioners have filed this petition,
under section 633(2) of the Companies Act, 1956 (hereinafter called "the
Act"), for being relieved from prosecution for their alleged liability for
non-filing of returns under rule 10 of the Companies (Acceptance of Deposits)
Rules, 1975, hereinafter called "the Rules".
Briefly, the
facts, as stated in the petition, are that M/s Punj Sons Private Limited,
hereinafter referred to as "the company", is a family concern, which
was incorporated in the year 1954. Petitioners Nos. 1, 2 and 3 became directors
in the year 1954. Petitioners Nos. 4 and 5 became directors of the company in
the years 1980 and 1982, respectively. Petitioners Nos. 1 to 4, along with the
company, and Shri Satya Narain Prakash Punj, are being prosecuted in the court
of the Chief Metropolitan Magistrate, Delhi, on a complaint filed by the
Registrar of Companies, Delhi, under rule 11 of the Rules, read with section
58A of the Act, for non-filing of returns under rule 10 of the Rules for the
years 31st March, 1976, to 31st March, 1982. There are complaints now pending
against them.
Shri Satya
Narain Prakash Punj has been acting as director in charge-managing director of
the company, right since its incorporation. The petitioners, being ordinary
directors, have never been in control of the affairs and day to day management
of the company and were never apprised of the excess borrowings nor was any
resolution passed to which they are parties that permitted the alleged
borrowings, beyond limits, by the company.
Shri Satya
Narain Prakash Punj who is in possession of the books of account, minutes
books, correspondence files and the statutory books has been managing the
affairs of the company and did not take the petitioners into his confidence
about the alleged excess borrowings by the company.
It is further
alleged that petitioner No. 1 is aged about 70 years. Smt. Maya Rani Punj,
petitioner No. 2 herein, is a housewife, and so is petitioner No. 3. Petitioner
No. 4 is a resident of
From
enquiries made and from a perusal of the records in the office of the Registrar
of Companies, it has come to the knowledge of the petitioners that all the
deposits were loans advanced by the directors, shareholders and relatives of
directors whose advances had been guaranteed by the directors. According to the
petitioners, the person who is in default has been specifically defined and the
entire board of directors cannot be foisted with liability till they fall in
the definition now given under section 5 of the amended Act. For these reasons
and also for the other facts and averments made in the petition, the
petitioners submit that they are not liable, in any manner, to be held
responsible and liable for the prosecution launched against them by the
respondent on the complaint filed under section 11 of the Rules, read with
section 58A of the Act.
In reply, the
Registrar of Companies, the respondent herein, has stated that this court has
jurisdiction to grant relief only in respect of apprehended prosecution under
section 633(2) of the Act, and, therefore, in respect of the pending
prosecutions, the petition is not maintainable. Further, according to the
respondent, the petitioners have failed to implead the necessary party, i.e.,
Shri Satya Prakash Punj, as, according to the petitioners, he has been in
control of the affairs and the day to day management of the company.
The first
question which arises for decision is, whether, under section 633(2) of the
Act, this court has jurisdiction to relieve the petitioners from the liability
of not filing returns under rule 11 of the Rules, in view of the fact that the
criminal complaints are already pending before the Chief Metropolitan
Magistrate,
In the first
place, Mr. B.N. Nayyar, learned counsel for the petitioners, contended that
non-filing of returns under rule 10 of the Rules qua the defaulting year
constitutes a single default and is not a continuing one. As such, the
petitioners cannot be prosecuted for default, allegedly committed, pertaining to
a particular year, repeatedly in the subsequent years. In any case, petitioner
No. 5, namely, Shri B.R. Punj, who became a director during 1982, cannot be
held liable for apprehended prosecution for the alleged defaults which were
committed by the company prior to his induction as director. Reliance is placed
upon the judgment in Assistant Registrar of Companies v. R. Narayanaswamy
[1985] 57 Comp Cas 787 (Mad).
Mr. Nayyar
has further urged that the complaints filed by the respondent under rule 11 of
the Rules in the Court of the Chief Metropolitan Magistrate, Delhi, are time
barred as the same were filed after a period of 3 years, from the alleged
defaults, which were committed
in the year 1982. The period of limitation is 6 months and the respondent has not
filed any application under section 473 of the Criminal Procedure Code, for
condonation of delay. In other words, no cognizance of the offence could be
taken by the court as the prosecutions were hopelessly time-barred. Cognizance
of the offence in such cases is deemed to have been taken when the delay is
condoned under section 473 of the Criminal Procedure Code.
Mr. Nayyar
submits that, in view of the judgment of the Calcutta High Court in In re
Hindustan Wire and Metal Products [1983] 54 Comp Cas 104, the petitioners are
entitled to be relieved of the liability, not only regarding the apprehended
prosecution, but also for prosecutions which are pending before the Chief
Metropolitan Magistrate, Delhi.
On the other
hand, Mr. N.S. Gupta, Assistant Registrar of Companies, has submitted that the
offence under rules 10 and 11 of the Rules is of a continuing nature and as
such, all the directors of the company are liable. He has further contended
that this court has no jurisdiction to grant relief under section 633(2) of the
Act, because the complaints already filed by the respondent are pending in the
Court of Additional Chief Metropolitan Magistrate, Delhi.
Sub-sections
(1) and (2) of section 633 of the Act are reproduced as under:
"(1) If in any proceeding for negligence, default,
breach of duty, misfeasance or breach of trust against an officer of a company,
it appears to the court hearing the case that he is or may be liable in respect
of the negligence, default, breach of duty, misfeasance or breach of trust, but
that he has acted honestly and reasonably, and that having regard to all the
circumstances of the case, including those connected with his appointment, he
ought fairly to be excused, the court may relieve him, either wholly or partly,
from his liability on such terms, as it may think fit:
Provided that in a criminal
proceeding under this sub-section the court shall have no power to grant relief
from any civil liability which may attach to an officer in respect of such
negligence, default, breach of duty, misfeasance or breach of trust.
(2) Where any such officer has reason to
apprehend that any proceeding will or might be brought against him in respect
of any negligence, default, breach of duty, misfeasance or breach of trust, he
may apply to the High Court for relief and the High Court on such application
shall have the same power to relieve him as it would have had if it had been a court before which a
proceeding against that officer for negligence, default, breach of duty,
misfeasance or breach of trust had been brought under sub-section (1)."
A bare
reading of the opening words of sub-section (2) clearly indicates that the
officer concerned must have an apprehension that the proceeding will or might
be brought against him in respect of any negligence, default, breach of duty,
misfeasance or breach of trust. Thus, the anticipation or apprehension is about
the possibility of a proceeding being brought. When the proceedings are
actually brought, then, ordinarily, there is no apprehension any more, as contemplated
in sub-section (2).
In Sri
Krishna Parshad v. Registrar of Companies [1978] 48 Comp Cas 397 (Delhi), Mr.
Justice D.K. Kapur (as he then was) was considering the question with regard to
the jurisdiction of the court under section 633(2) of the Act. In that case,
the facts were that petitioners, who were directors of M/s Western U.P.
Electric Power and Supply Co. Ltd., committed defaults in respect of holding
the annual general meeting for the period ending March 31, 1976. It was held
(at p. 400):
"I may
also indicate that the other court covered by section 633(1) need not
necessarily be a criminal court because there may very well be a civil
proceeding, criminal proceeding or even a revenue proceeding in respect of
which section 633(1) may apply. In all such cases, if a proceeding is
anticipated, the officer concerned can move the High Court at an early stage
and get relief in a suitable case. This has the great advantage of avoiding
that other proceeding if the High Court grants relief. If that other proceeding
has commenced, then the officer concerned has no other course open but to apply
to the relevant court under section 633 (1) to say that whatever negligence,
default, breach of trust, misfeasance, breach of duty or any other default
complained of there may be, he in fact, acted reasonably and honestly keeping
in view the circumstances of the case. The court can then grant relief. Thus,
the section as it were, operates in two stages. The High Court can grant
anticipatory relief and if a case is actually initiated, only the court before
which the complaint or trial is going on can grant relief. The preliminary
objection has, therefore, to be accepted."
I am in
respectful agreement with the view expressed above.
It may,
however, be pointed out that this view is only with regard to the jurisdiction
of the court under section 633(2) of the Act. But, in cases where cognizance of the offence has already been taken by
the court and the prosecutions are pending, under other provision of law, an
aggrieved party can move the High Court for quashing such pending complaints or
prosecutions. In Sri Krishna Parshad [1978] 48 Comp Cas 397 (Delhi) the
admitted fact was that the complaint had already been filed before a Magistrate
in respect of default and, from the judgment, it appears that cognizance had
been taken by the court and the question of limitation was not involved.
Now, it is to
be seen whether, in the present case, cognizance of the offence was taken by
the learned Chief Metropolitan Magistrate on the complaints filed by the
respondent under rule 11 of the Rules.
Before I
proceed to decide this point, it is necessary to deal with the other
contentions, viz., whether the contravention/offence under rule 11 of the Rules
is a continuing offence or not.
For my
benefit, rules 10 and 11 of the Companies (Acceptance of Deposits) Rules, 1975,
are reproduced as under: —
"10. Return of deposits to
be filed with the Registrar.—Every company to which these Rules apply shall, on
or before the 30th day of June of every year, file with the Registrar, a return
in the form annexed to these rules and furnishing the information contained
therein as on the 31st day of March of that year duly certified by the auditor
of the company.
(2) A copy of
the return shall also be simultaneously furnished to the Reserve Bank of India.
11. Penalty.
—If a company or any other person contravenes any provision of these rules for
which no punishment is provided in the Act, the company and every officer of
the company who is in default or such other person shall be punishable with
fine which may extend to five hundred rupees and where the contravention is a
continuing one, with a further fine which may extend to fifty rupees for every
day after the first, during which the contravention continues."
In support of
its contention that the offence under rule 11 of the Rules is a continuing one,
the respondent has placed reliance on the nature of fine which is to the extent
of Rs. 500 and where, the contravention is a continuing one with a further fine
which may extend to Rs. 50 for every day after the first.
In CWT v.
Suresh Seth [1981] 129 ITR 328, their Lordships of the Supreme Court were
considering the question whether the default committed under section 18(1)(a)
of the Wealth-tax Act, 1957, was a single
default or a continuing one. The facts in that case were that the assessee
filed his wealth-tax returns, for the assessment years 1964-65 and 1965-66, on
March 18, 1971, while he was required, by section 14(1) of the Wealth-tax Act,
to file the same, for the year 1964-65, on or before June 30, 1964, and the
return for the assessment year 1965-66 on or before June 30, 1965. The
following two questions were referred, under section 27(1) of the Wealth-tax
Act, to the Punjab and Haryana High Court which answered the same in favour of
the assessee :
"1. Whether, on the facts and in the
circumstances of the case, the Tribunal was right in law in holding that the
offence relating to the omission to file the wealth-tax returns was a
continuing offence ?
2. Whether, on the facts and in the
circumstances of the case, the Tribunal was right in law in upholding the
penalties of Rs. 5,382 and Rs. 7,759 levied by the department on the assessee
under section 18(1)(a) of the Wealth-tax Act, 1957, for the assessment years
1964-65 and 1965-66, respectively?"
The Supreme
Court held (at pages 338, 339) :
"Section
18 of the Act, with which we are concerned in this case, however, does not
require the assessee to file a return during every month after the last day to
file it is over. Non-performance of any of the acts mentioned in section
18(1)(a) of the Act gives rise to a single default and to a single penalty, the
measure of which, however, is geared up to the time lag between the last date on
which the return has to be filed and the date on which it is filed. The
default, if any committed, is committed on the last date allowed to file the
return. The default cannot be one committed every month thereafter. The words
'for every month during which the default continued' indicate only the
multiplier to be adopted in determining the quantum of penalty and do not have
the effect of making the default in question a continuing one. Nor do they make
the amended provisions modifying the penalty applicable to earlier defaults in
the absence of necessary provisions in the amending Acts. The principle
underlying section 6 of the General Clauses Act is clearly applicable to these
cases. It may be stated here that the majority of the High Courts in India have
also taken the same view."
In Assistant Registrar of Companies v. R.
Narayanaswamy [1985] 57 Comp Cas 787
(Mad), the facts were that the Assistant Registrar of Companies of Tamil Nadu
filed a criminal complaint against Southern Textiles Ltd., and its 13 directors
under section 58A(3)(c) of the Companies Act, 1956, for the offence that the
company had accepted deposits in excess
of the limits prescribed by the Reserve Bank of India Act, 1934, and the rules,
framed thereunder, and it failed to repay the excess, on or before April 1,
1975, as required by law. Following the judgment in CWT v. Suresh Seth [1981]
129 ITR 328 (SC), the Madras High Court held (at pages 788 and 789 of 57 Comp
Cas) :
"It is
not disputed before me by learned counsel for the petitioner that the
respondents became directors of the first accused-company only from July, 1975,
and they were not directors on April 1, 1975, when the excess deposits had to
be returned as per section 58A(3)(c) of the Act. It is, however, contended by
him that the failure to repay the deposits on or before April 1, 1975, is a
continuing offence and persons who became directors even subsequent to April 1,
1975, are liable for the default, so long as the excess deposits are not
repaid. But, there is nothing in section 58A(3)(c) or any other provision of
the Act to hold that the non-repayment of the excess deposits on or before
April 1, 1975, is a continuing offence. In CWT v. Suresh Seth [1981] 129 ITR
328 (SC), the question came up before the Supreme Court whether the failure to
file a wealth-tax return by the assessee after the last date was over, was a
continuing offence. It was held by the Supreme Court that such a failure gave
rise to a single default and to a single penalty the measure of which, however,
is geared up to the time lag between the last date on which the return has to
be filed and the date on which it is actually filed. The default, if any
committed, is committed on the last date allowed to file the return, the
default cannot be one committed every month thereafter. The words in section
18(1)(a) of the Act, 'for every month during which the default continued
indicate only the multiplier to be adopted in determining the quantum of
penalty and do not have the effect of making the default in question a continuing
one. The principle enunciated therein applies on all fours to the case on hand.
The failure to repay the excess deposits on or before April 1, 1975, is a
single default, which gets completed on the expiry of the aforesaid period and
cannot be said to be a continuing one."
The
principles of law enumerated above apply on all fours to the default under rule
11 of the rules. The words in rule 11 that the fine may extend to Rs. 50 for
every day after the first, indicate only the multiplier to be adopted in
determining the quantity of penalty, and did not have the effect of making the
default in question a continuing one.
There is
nothing in rule 11 or section 58A of the Act to show that the offence was
intended to be a continuing one.
Now, I will
deal with the other contention of Mr. Nayyar that, in view of the admitted fact
that the compliants were filed after the period of limitation, and no
application for condonation of delay has been filed, so, no cognizance of the
offence, is deemed to have been taken.
Chapter XXXVI
and sections 467 to 473 of the Code of Criminal Procedure, deal with the
limitation for taking cognizance of certain offences and condonation of delay,
etc.
Sections 467,
468, 469 and 473 of the Code of Criminal Procedure read as under :
"467.
For the purposes of this Chapter, unless the context otherwise requires,
'period of limitation' means the period specified in section 468 for taking
cognizance of an offence.
468. (1) Except as otherwise
provided elsewhere in this Code, no court shall take cognizance of an offence
of the category specified in sub-section (2), after the expiry of the period of
limitation.
(2) The period of limitation shall be —
(a) six
months, if the offence is punishable with fine only;
(b) one
year, if the offence is punishable with imprisonment for a term not exceeding
one year;
(c) three years, if the offence is punishable
with imprisonment for a term exceeding one year but not exceeding three years.
(3) For the purposes of this section, the period of limitation, in
relation to offences which may be tried together, shall be deter mined with
reference to the offence which is punishable with the more severe punishment
or, as the case may be, the most severe punishment.
469. (1) The
period of limitation, in relation to an offender, shall commence—
(a) on
the date of the offence; or
(b) where the commission of the offence was not
known to the person aggrieved by the offence or to any police officer, the
first day on which such offence comes to the knowledge of such person or to any
police officer, whichever is earlier; or
(c) where it is not known by whom the offence
was committed, the first day on which the identity of the offender is known to
the person aggrieved by the offence or to the police officer making
investigation into the offence, whichever is earlier.
(2) In computing the said
period, the day from which such period is to be computed shall be excluded.
473.
Notwithstanding anything contained in the foregoing provisions of this Chapter,
any court may take cognizance of an offence after the expiry of the period of
limitation, if it is satisfied on the facts and in the circumstances of the
case that the delay has been properly explained or that it is necessary so to
do in the interests of justice."
In Hindustan
Wire and Metal Products, In re [1983] 54 Comp Cas 104 (Cal), the facts were
that a petition under section 633 of the Act for relieving the petitioner as a
consequence of default and violation of section 295 of the Act in granting a
loan to another company was filed on June 28, 1980. The Registrar of Companies
filed a complaint before the Chief Metropolitan Magistrate, Calcutta, on June
12, 1980. Ad interim stay was granted by the court, on July 2, 1980 whereby,
the Registrar of the Companies was personally restrained from commencing any
prosecution against petitioners for the default and the delay was condoned by
the Chief Metropolitan Magistrate, on November 4, 1980, ex parte. The fact
remains that the complaint was filed on June 12, 1980, i.e., 16 days prior to
the filing of the petition under section 633 of the Act. Two points arose: (1)
whether the application under section 633 of the Act was maintainable, after
the complaint had been filed and cognizance of the same was taken by the
Magistrate, and (2) whether filing the complaint and making an application for
condoning the delay could be said to be the initiation of a criminal proceeding
or initiation of proceedings before the delay was condoned and the offence was
taken cognizance of by the criminal court where the proceedings had been filed.
The Calcutta High Court held (at pages 112, 113):
"I am of
the view that there is no substance or merit in the contention raised on behalf
of the respondent as the said criminal proceeding is clearly in violation of
the order of injunction passed by this court and it is strange enough that
before the criminal court the respondent has not brought to the notice of the
court the order of this court dated 2nd July, 1980, by which the respondent was
restrained from proceeding or taking any step against the petitioners pursuant
to the letter dated 12th May, 1980, by way of initiating any criminal
proceeding. It must be held, according to the provisions of the Criminal
Procedure Code, which I have set out before, that there was no pending criminal
proceeding or initiation of any criminal proceeding against the petitioner
before the present application was made. It is only after the present application was made and an ad interim order was
issued, as hereinbefore stated, that the said order condoning the delay was
passed ex parte without any notice to the accused and cognizance of the offence
was taken at the instance of the respondent, who was restrained by an
injunction of this court from taking any step in the matter."
I am in
respectful agreement with the view expressed by the Calcutta High Court in the
said judgment.
The offence under
rule 11 of the Rules is punishable with fine as such; the period of limitation
is six months subject to other exceptions as provided in Chapter XXXVI. It is
not disputed that the respondent has not filed any application under section
473 of the Criminal Procedure Code for condonation of delay in filing the
complaint for which the period of limitation is six months.
Section 468
of the Criminal Procedure Code lays down that, except as otherwise provided
elsewhere in the Code, no court shall take cognizance of an offence of the
category specified in sub-section 2 after the expiry of the period of
limitation.
It means
that, in the facts and circumstances of the present case, unless the bar of
limitation was lifted by condonation of delay, by an order of the Magistrate
made under section 473 of the Criminal Procedure Code, it cannot be said that
the cognizance of an offence has been taken on the mere filing of the complaint
against the accused.
The
contention of Mr. Nayyar is that none of the petitioners is an "officer in
default" within the meaning of section 5 of the Act, inter alia, on the
grounds that the petitioners never participated or were parties to any
resolution of the company, thereby allowing the company to make borrowings or
to accept deposits within the scope of rule 2 of the Rules; that the
petitioners were never in control or the management of the affairs of the
company, nor at any time, were they in possession and control of the books of
account and other statutory books. Mr. Nayyar contends that Shri S.P. Punj,
petitioner No. 1, is about 70 years of age, Smt. Maya Rani Punj, petitioner No.
2, and Smt. Shakuntla Rani Punj, petitioner No. 3, are housewives. Petitioner
No. 4 is a resident of Bombay and has been suffering from severe diabetes mellitus
and ischaemic heart disease. As such, he is unable to concentrate due to
abnormal vision and cannot also walk properly. Petitioner No. 5, namely, Shri
B.R. Punj, became director of the company during the year 1982. In fact, Shri
Satya Narain Prakash Punj has been the managing director of the company and has
been in possession of the books of
account, minutes books, correspondence files and the other statutory books of
the company. He has been managing the affairs of the company without, in any
manner, taking the petitioners into confidence, about the alleged borrowings or
deposits by the company.
Mr. Nayyar,
has also urged that, in fact, neither the petitioner nor the company is liable
to file any return under rule 10 of the Rules as the "company" being
a private limited company and being neither a banking company, nor a financial
company, was exempted from filing a nil return, vide Department of Company
Affairs Circular letter No. 4/1/76-CL-XIV, dated February 5, 1976, as the
amounts involved belonged either to the directors or relatives of directors or
shareholders of the company, or were guaranteed by the directors and did not
come under the definitipn of deposits, as given under rule 2(ix)(b) of the
Rules. He has filed a photo copy of the relevant circular.
According to
Mr. Nayyar, a bare reading of the provisions of section 5 of the Act, prior to
its substitution by the Companies (Amendment) Act, 1988, shows that if any
prosecution is launched by the Registrar of Companies, he has to investigate as
to who is the officer in default and not to launch prosecution against all the
directors, when they are part time, whole time or outstation directors, or are
not concerned with the day to day working of the company.
The next
contention of Mr. Nayyar is that various circulars have been issued by the
Department of Company Affairs, Government of India, from time to time, for the
guidance of the Registrars of Companies, and for following up of the policy
regarding institution of prosecution for defaults of non filing of returns
under rule 10 of the Rules. He has placed reliance upon the judgment in H.
Nanjundiah v. V. Govindan, Registrar of Companies, Maharashtra [1986] 59 Comp
Cas 356 (Bom).
In H.
Nanjundiah's case [1986] 59 Comp Cas 356 (Bom), by a resolution of the board of
directors, the company was allowed to make borrowings in excess of the limits.
The Registrar of Companies issued notice, to show cause as to why action be not
taken against the directors for accepting deposits exceeding the limits
prescribed by rule 3(2)(i) and (ii) of the Companies (Acceptance of Deposits)
Rules, 1975. While interpreting the meaning of "officer" who is in
default, under section 5 of the Act, the High Court of Bombay held (at page
358):
"In view
of this, I had asked Mr. Bulchandani, learned counsel for the respondent, to
point out any resolution of the company to which the petitioner was a party which allowed the company to make
borrowings in excess of the limits or to point out any act of the petitioner
wherein the petitioner had knowingly subscribed to the borrowings beyond the
limits, or of the petitioner having wilfully authorised or permitted someone to
borrow monies in excess of the limits. Mr. Bulchandani was unable to point out
a single act to satisfy this position or even indicate remotely as to how the
petitioner could be said to be 'an officer in default'."
The
petitioners have filed a copy of the application, annexure 8 to the petition,
which was submitted by Shri Satya Narain Prakash Punj, under section 205 of the
Code of Criminal Procedure, before the learned Chief Metropolitan Magistrate,
Delhi. Shri Satya Narain Prakash Punj has admitted that he was the managing
director of the company.
Mr. Nayyar
has invited the attention of this court to the copy of the award, annexed with
the rejoinder, to show that the company, namely, M/s Punj Sons Pvt. Ltd., has
gone to the group headed by Shri Satya Narain Prakash Punj, as a result of
family partition. The award has since been made a rule of the court, vide order
dated March 17, 1988, passed by the High Court of Delhi. Thus, the petitioners
are no longer in the company.
From the
various circulars issued by the Department of Company Affairs, it becomes
doubtful whether the alleged deposits were beyond the permissible limits, as
provided under rule 3(2) of the Rules. It is not disputed that petitioner No. 1
is 70 years of age, while petitioners Nos. 2 and 3 are housewives; petitioner
No. 4 is a resident of Bombay and is suffering from the aforesaid diseases and
is unable to walk. Petitioner No. 5 was made director in the year 1982.
The
respondent has not been able to show that any of the petitioners was a party to
any of the resolutions passed by the company for borrowings or taking deposits.
In my view,
it is established that the petitioners are not "officers in default",
within the meaning of section 5 of the Act.
Under the
facts and circumstances, the petitioners are relieved from the alleged
liabilities for non-filing of returns by M/s Punj Sons Pvt. Ltd., under rule 10
of the Companies (Acceptance of Deposits) Rules, 1975, read with section 58A of
the Companies Act, 1956, and also from the consequence of the alleged defaults
for which the complaints have been filed under rule 11 of the Rules. Company
Petition No. 133 of 1989 stands disposed off. No order as to costs.
[1991]
72 COMP CAS 0366 (CLB)
HIGH COURT OF COMPANY LAW BOARD—WESTERN
REGION BENCH
v.
Jyoti
Wire Industries Ltd.
S.P. UPASANI (CHAIRMAN).
APRIL 2, 1991
Anand S. Bhatt, Janak Dwarkadas
and Kanak V. Mehta for the Applicant.
R.J.
Maoni, for the Respondent.
ORDER
This
is an application dated March 14, 1990, and filed on April 9, 1990, by Mrs.
Kanak V. Mehta under section 58A(9) of the Companies Act, 1956, against Jyoti
Wire Industries Ltd., Bombay, as the company failed to repay an amount of Rs. 2,10,000
deposited with the company. In the application, neither the number and date of
fixed deposit receipt nor the terms and conditions of the deposit are mentioned.
In the various documents filed along with the application, it has been stated1
that there is a dispute between the depositor-applicant and her husband, who
also controls Jyoti Wire Industries Ltd. A letter dated July 25, 1988, from the
respondent-company has been filed in which it has been mentioned that the
deposit of Rs. 2,10,000 is jointly held by the applicant and her husband, Shri
Vinod D. Mehta, and interest dues are being paid periodically to Mrs. Kanak V.
Mehta. It has been stated by the depositor-applicant that she had made a number
of applications to the company to give a photo copy of the application made at
the time of placing the fixed deposit, a photo copy of the fixed deposit
receipt issued by the company and the details as to when the fixed deposit
matures for repayment. However, the company has neither supplied the
information nor replied to her letters.
The
case came up for final hearing on March 6, 1991. While the advocates appearing
on behalf of the depositor-applicant were present, none appeared on behalf of
the company. Earlier hearings were held on May 18, 1990, July 12, 1990, August
1, 1990, September 7, 1990, and October 4, 1990. Some of the hearings were
attended by the representative of the respondent-company. The company had an
adequate opportunity to have its say. The company has already filed its interim
replies dated July 9, 1990, July 31, 1990, September 4, 1990, October 1, 1990,
and a counter-affidavit has been filed on October 30, 1990. There is no request
from the respondent-company for adjournment of the case and since the say of
the company is already on record, it was decided to proceed with the hearing of
the case. In the written communications from the company, it has been pointed
out that the company, Jyoti Wire Industries Ltd., was incorporated as a private
limited company on December 31, 1971, and Mrs. Kanak V. Mehta is a shareholder
of the company right from the inception of the company. The company became a
deemed public company on July 2, 1988, because of the operation of the
provisions of section 43A(1A) of the Companies Act, 1956. It has also been
stated that, as per rule 2(b)(ix) of the Companies (Acceptance of Deposits)
Rules, 1975, the amount deposited by the shareholders is not covered within the
definition of "deposits". Therefore, it has been contended by the
company that the provisions of section 58A of the Companies Act, 1956, are not
applicable in this case. It has also further been stated by the
respondent-company that none of the fixed deposits has matured as on October
29, 1990, and, therefore, the question of repayment does not arise.
Shri
J. Dwarakadas, advocate, appearing on behalf of the depositor-applicant, Mrs.
Kanak V. Mehta, stated that, in spite of the Company Law Board's orders, the company has not given inspection of
original documents. It was further pointed out that, in the hearing held on
August 1, 1990, while the respondent-company had furnished a copy of the
application for fixed deposit as well as the rules and regulations governing
the acceptance of deposits, it has not submitted for inspection the original
application along with the letter of renewal containing a declaration
especially in view of the applicant-depositor's denial in her letter of August
20, 1990, addressed to the company of having signed any such declaration. Shri
Dwarakadas further argued that the company has admitted that it was a joint
deposit and since the depositor-applicant does not have original records with
her because of family disputes, the burden should be on the respondent-company
to prove that the fixed deposit has not matured.
The main question in this case is regarding the maintainability of the proceedings under section 58A in the absence of any evidence as to the terms and conditions of the fixed deposit, especially relating to the date of maturity and whether the deposit made by a shareholder will be covered under the definition of deposit in rule 2(b) of the Companies (Acceptance of Deposits) Rules, 1975. Therefore, it was decided to first examine the preliminary objection regarding the maintainability of the application. According to section 58A(9) of the Companies Act, 1956, the jurisdiction of the Company Law Board is extended only if the company has failed to repay any deposit or part thereof, in accordance with the terms and conditions of such deposit. In this connection, the depositor-applicant has not placed any material evidence before me to indicate that the deposit is overdue. The company has stated in the affidavit filed on October 30, 1990, by R.J. Mooni, constituted attorney, that Mrs. Kanak V. Mehta is a shareholder of the company right from inception of the company and that none of her deposits have matured and, therefore, the question of repayment does not arise. As against this, the affidavit filed by the depositor-applicant on September 25, 1990, does not state categorically whether the deposits have matured and whether the depositor-applicant has signed any declaration while placing the fixed deposit with the respondent company. It is stated in the affidavit in para 10 : "I say that disputes and differences between me and my husband arose some time in January, 1988.1 say that, prior thereto, I reposed complete trust and confidence in my husband as well as in my father-in-law who were in complete charge and control of the affairs of the company, viz., Jyoti Wire Industries" Ltd. I say that, in view of the trust and confidence reposed by me in my husband as well as my father-in-law, my signatures were often obtained on letters, cheques, etc., which I often signed without questioning or reading the contents thereof. I say that if at all the company is in possession of any declaration allegedly signed by me (which is as stated hereinabove I do not recollect as having signed), my signature on the same might have been obtained in the aforesaid circumstances." It is on record that the impugned deposit is held jointly by the applicant and her husband and both are shareholders in the company. The management of the company is controlled by the husband of the applicant. Because of strained relations between the joint holders, the applicant has not been able to produce any material evidence in respect of maturity of the fixed deposit and the terms and conditions of the fixed deposit. The company has claimed exemption from the provisions of section 58A and also categorically stated that none of the deposits of the applicant have matured. In view of the circumstances, I hold that the depositor-applicant has not been able to establish her case as required under section 58A(9) of the Companies Act, 1956, and the petition is, therefore, dismissed.